Our office finds that the month of December is when everyone suddenly looks for 2016 tax tips.
Really? Come on guys and gals, the year is almost over. Tax planning is best January 2 of that year. So if you want to save money in 2017, start January 2 of that year to get a huge refund the next year (2018).
But there are some great last minute things you can do to get a bigger refund, for this year:
Donate to Charity
If you itemize your tax deductions on your tax return, one of the best ways to increase those deductions is to give more to charity.
Besides doing a good thing, you receive a tax deduction that can be used to reduce your taxable income.
Many people this time of year don’t have a lot of extra funds to give to charity. So one really great way to give more to charity without digging deeper into your pocket is to donate clothes, toys, or other items of property rather than cash. It’s a good way to clean out your closet and do something positive. Don’t forget to get a receipt from the charity for whom you gave.
Examine Your Investment Accounts
Now is a good time to review your investment income for 2016, which consists of interest, dividends, and capital gains.
The tax code allows taxpayers to offset any capital gains they have with any capital losses. So if in reviewing your investment transactions in your non-retirement accounts during the year you notice you have sold investments at a profit, you should look at your current holdings and see if there are any investments that can be sold at a loss.
This loss can then be used to reduce your capital gains. If the losses exceed your capital gains for the year, you can use $3,000 of the excess to reduce other taxable income — saving you even more income taxes.
Any balance of the excess not used can be carried forward indefinitely. Many taxpayers hesitate in selling investments at a loss. One answer to this would be to immediately buy back the investment with the proceeds from the sale.
Maximize Your Retirement Accounts
Employees can contribute $18,000 per year to a retirement plan such as a 401(k) or 403(b) at their job. For those employees age 50 or older in 2016, the amount increases to $24,000.
The amount contributed reduces your taxable income and is taken out each pay period. For example, let’s look at someone age 55 who is paid twice a month and wishes to have $1,000 taken from each pay period.
However, since the amount contributed reduces the amount of taxes withheld from each paycheck, the reduction in their net pay will be less than the amount you contribute.
For example, contributing $100 per pay period may only reduce your net pay by $70. The difference of $30 is the lower tax withholding taken due to the contribution to the 401(k).
If you have not maximized your contribution as of now, you still can do so. Although it may result in a higher contribution amount for the rest of the year, it may be worth it to save taxes and help save for your retirement on a tax favored basis.
Reviewing your tax planning before year-end can present opportunities for you to save taxes and, in the case of charitable donations, help some great causes.
As always, consult with a tax adviser to see if any of the above strategies are right for your situation.
Anthony Rivieccio is the founder & the CEO of The Financial Advisors Group, celebrating its 20thyearasafee-only financial planning firm specializing in solving financial problems. Anthony, a recognized financial expert since 1986, has been featured by many national and local media including: Klipingers Personal Finance, The New York Post, News12 The Bronx, Bloomberg News Radio, BronxNet, Norwood News, The West Side Manhattan Gazette, Labor Press Magazine, Financial Planning Magazine, 1010 WINS radio, The Bronx News and The Bronx Chronicle.
For financial assistance or a FREE 2016 Investment Analysis. Anthony can be reached at (347) 575 5045.