Attention last minute savers! There’s still time to reduce your tax burden for 2016.
Have you funded a traditional IRA, Roth IRA, or SEP this year? The deadline for contributions to IRAs is April 18, 2017 — this year’s filing deadline. For self-employed taxpayers, contributions to a SEP may be postponed until October 16, 2017 if a tax return extension has been filed.
Increasing your 401(k) contribution so that you are putting in the maximum amount of money allowed is a smart way to lower taxes. If you can’t afford the maximum contribution, $18,000 for 2016, $24,000 if you are age 50 or over, you should still contribute the full amount that will be matched by employer contributions – no reason to leave money on the table!
If you are currently enrolled in an employer sponsored retirement plan, your contribution to a traditional IRA will not be tax deductible, but you will be able to take advantage of tax-deferred interest compounding. The cap for contributions to a traditional or Roth IRA in 2016 is $5,500 for taxpayers under 50 and $6,500 for those over 50.
If you have reason to believe you’ll be in the same or a lower tax bracket next year, it may make sense to defer income by taking capital gains in 2017 instead of in 2016. If you are self-employed or freelancing and can push revenue into a lower earning year, it may be wise to do so. Winding up in a higher tax bracket can result in a big surprise in your tax bill. Your forecast for personal income this year vs. next year is an important issue to discuss with your tax professional.
Charitable deductions are another great way to lower your taxes before year’s end. Just make sure that the charity to which you are donating is recognized by the IRS as being tax-exempt, and that you document and photograph all items donated.
“Loss harvesting” is the practice of selling stocks and mutual funds with the goal of realizing losses. Those losses can offset taxable gains you have realized during the year, dollar for dollar. This is another good conversation to have with your enrolled agent.
To make sure you’re taking advantage of all available tax savings, tax credits and deductions for 2016, be sure to bring the right documents to your tax professional. Along with any Forms W-2 from your employer, bring Forms 1099 declaring misc. income, mortgage interest information, and K-1 forms showing income from a partnership, small business or trust. Bring documentation of any student loans you may be paying off, and money spent on child care.
Some other things to consider: if you collected unemployment benefits at any time during the year, that money is generally taxable and you will need to bring a form 1099-G. For state filing, you’ll want to remember to include any personal property tax paid – for example, on your automobile. Did you collect Social Security, rent a property, receive self-employment income or pay alimony? Cancelled checks and receipts can help to document expenses you wish to claim, such as those related to a home office. Job search expenses, moving expenses and college expenses may all be deductible under certain circumstances. Medical expenses might be deductible, but the bar is high.
As with everywhere else in life, often what the large print giveth the small print taketh away. For instance, IRA contributions — both traditional and Roth — have some tricky limitations (and some workarounds, too). Our very own Enrolled Agent, Terry Mickelson, is well placed to help you navigate. Give us a call at 716-218-0564 to schedule an appointment! Don’t let this be your future: