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Year-End Tax Planning Moves for Individuals

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  1. Postpone income until 2017 and accelerate deductions into 2016 to lower your 2016 tax bill. This tried and true strategy could be even more meaningful in light of the possible proposed tax reform.  This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2016 that are phased out over varying levels of adjusted gross income (AGI). Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances.
  2. Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, and then buy back the same securities at least 31 days later. It may be advisable for us to meet to discuss year-end trades you should consider making.
  3. If you believe a Roth IRA is better than a traditional IRA, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your AGI for 2016.
  4. It may be advantageous to try to arrange with your employer to defer, until early 2017, a bonus that may be coming your way.
  5. Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2016 deductions even if you don’t pay your credit card bill until after the end of the year.
  6. If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2016 if you won’t be subject to Alternative Minimum Tax (AMT) in 2016.
  7. Estimate the effect of any year-end planning moves on the AMT for 2016, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction for state property taxes on your residence, state income taxes, miscellaneous itemized deductions, and personal exemption deductions.  If you are subject to the AMT for 2016, or suspect you might be, these types of deductions should not be accelerated.
  8. You may be able to save taxes this year and next by applying a bunching strategy to “miscellaneous” itemized deductions, medical expenses and other itemized deductions.
  9. If you are considering charitable donations, you may want to donate appreciated property to avoid the capital gains on that property.
  10. A special provision gives taxpayers the ability to distribute tax-free to charity up to $100,000 from an IRA maintained for an individual who has reached age 70 ½.  The distribution to charity would be used in determining your required minimum distribution. Although you cannot take the charitable contribution as an itemized deduction, the benefits of lowering your AGI can be far reaching for many phase outs.
  11. You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.
  12. Increase the amount you set aside for next year in your employer’s health flexible spending account (FSA) if you set aside too little for this year.
  13. If you become eligible in December of 2016 to make health savings account (HSA) contributions, you can make a full year’s worth of deductible HSA contributions for 2016.
  14. Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. The exclusion applies to gifts of up to $14,000 made in 2016 and 2017 to each of an unlimited number of individuals. You can’t carry over unused exclusions from one year to the next. Qualifying tuition payments and medical payments do not count against this limit. Of course, this strategy may not be necessary if the estate tax is repealed.
  15. To reduce 2016 taxable income, consider disposing of a passive activity in 2016 if doing so will allow you to deduct suspended passive activity losses.
  16. If you own an interest in a partnership or S corporation, consider whether you need to increase your basis in the entity so you can deduct a loss from it for this year.

These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you.