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Year-End Tax Planning for Individuals

Below, the tax accounting professionals at bgr CPAs provide year-end tax planning tips for individuals. To speak with a qualified tax CPA regarding your year-end accounting, contact bgr CPAs!

  1. Individuals who are not active participants in an employer pension plan may make deductible contributions to an IRA. The annual deductible contribution limit for an IRA for 2017 is $5,500. For 2017, a $1,000 “catch-up” contribution is allowed for taxpayers age 50 or older by the close of the taxable year, making the total limit $6,500 for these individuals. Individuals who are active participants in an employer pension plan also may make deductible contributions to an IRA, but their contributions are limited in amount depending on their AGI. Your contributions may be reduced or eliminated depending on your income, please call us for more information.
  2. A Roth IRA permits nondeductible contributions of up to $5,500 ($6,500 if making catch-up contribution) for 2017, but no more than an individual’s compensation. Earnings grow tax-free, and distributions are tax-free provided no distributions are made until more than five years after the first contribution and the individual has reached age 591/2. Distributions may be made earlier on account of the individual’s disability or death. Your contributions may be reduced or eliminated depending on your income, please call us for more information.
  3. The 401(k)elective deferral limit is $18,000 for 2017. If your §401(k) plan has been amended to allow for catch-up contributions for 2017 and you will be 50 years old by December 31, 2017, you may contribute an additional $6,000 to your §401(k) account, for a total maximum contribution of $24,000 ($18,000 in regular contributions plus $6,000 in catch-up contributions).
  4. The SIMPLE plan deferral limit is $12,500 for 2017. If your SIMPLE plan has been amended to allow for catch-up contributions for 2017 and you will be 50 years old by December 31, 2017, you may contribute an additional $3,000.
  5. In many cases, employers will require you to set your 2018 retirement contribution levels before January 2018. But, if you did not elect the maximum 401(k) contribution for 2017, you may be able to increase your amount for the remainder of 2017 to lower your AGI in order to take advantage of some of the tax breaks described above. Maximizing your contribution is generally a good tax-saving move.
  6. If you expect your AGI to be higher in 2017 than in 2018, or if you anticipate being in the same or a higher tax bracket in 2017, you may benefit by deferring income to 2018. Deferring income will be advantageous so long as the deferral does not bump your income to the next bracket. We do expect to have new tax brackets for 2018 with the new tax legislation.
  7. An expense is only deductible in the year in which it is actually paid. Under this rule, if your tax rate is going to increase in 2018, it is a smart strategy to postpone spending until after year end to take the deduction in 2018.
  8. The overall limitation on itemized deductions (“Pease” limitation) applies to taxpayers whose AGI exceeds an “applicable amount.” For 2017, the applicable amount is $313,800 for a married couple filing a joint return or a surviving spouse, $287,650 for a head of household, $261,500 for an unmarried individual, and $156,900 for a married individual filing a separate return. In addition, certain deductions may be claimed only if they exceed a percentage of AGI: 10% for medical expenses, 2% for miscellaneous itemized deductions, and 10% for casualty losses (except in the case of a casualty loss due to the recent hurricanes).
  9. For 2017, medical expenses, including amounts paid as health insurance premiums, are deductible only to the extent that they exceed 10% of AGI for all taxpayers. Unless extended by Congress, 2016 was the last year the special 7.5% limitation applied for taxpayers age 65 or older.
  10. Consider making your charitable contributions at the end of the year. This will give you use of the money during the year and simultaneously permit you to claim a deduction for that year. You can use a credit card to charge donations in 2017 even though you will not pay the bill until 2018. A mere pledge to make a donation is not deductible, however, unless it is paid by the end of the year.
  11. To avoid capital gains, you may want to consider giving appreciated property to charity. Regarding charitable contributions please remember the following rules: (1) no deduction is allowed for charitable contributions of clothing and household items if such items are not in good used condition or better; (2) the IRS may deny a deduction for any item with minimal monetary value; and (3) the restrictions in (1) and (2) do not apply to the contribution of any single clothing or household item for which a deduction of $500 or more is claimed if the taxpayer includes a qualified appraisal with his or her return. Charitable contributions of money, regardless of the amount, will be denied a deduction, unless the donor maintains a cancelled check, bank record, or receipt from the donee organization showing the name of the donee organization, and the date and amount of the contribution.
  12. A special provision gives taxpayers the ability to distribute tax-free to charity up to $100,000 from a traditional or Roth IRA maintained for an individual who has reached age 701/2. Since the distribution is not included in income, no corresponding charitable deduction is allowed.  The donation cannot be contributed to a private foundation, only public charities.
  13. Expenses attributable to using the home office as a business office are deductible if the home office is used regularly and exclusively for business. If you have been using part of your home as a business office, we should talk about the amount of any deduction you may be able to take because an IRS safe harbor could be used to minimize audit risk.
  14. You may want to time the sale of assets so as to have offsetting capital losses and gains. Capital losses may be fully deducted against capital gains and also may offset up to $3,000 of ordinary income ($1,500 for married filing separately).
  15. 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 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 paid directly to the provider do not count against this limit.  Of course, this strategy may not be necessary if the estate tax is repealed. For 2018, the annual gift exclusion increases to $15,000.