You still have time to make your finances work for you—see what tax strategies you can utilize before the year is over.
Have you accomplished everything you wanted to in 2016? Even if you have to defer few things until 2017, you still have time this year to make all of those smart financial moves. To help you to finish off this year financially stable, here are a few year-end tax planning strategies.
Usually, there is a set procedure in which income gets taxed in the year you received it. But there is a chance you can postpone taxes on an end-of-year bonus to the following year.
If you’re a freelancer, a consultant, or self-employed you have a little more leeway. When you delay billings until late December, you are actually assuring you don’t receive payment until the next year.
It doesn’t matter whether you are self-employed or employed, you can also choose to put off income by taking capital gains in 2017 rather than in 2016.
Putting off your income is surely a practical approach if you believe that you will be in the same or lower tax bracket in the following year. Keep in mind you don’t want to be influenced by a bigger tax bill the following year if the additional income could take you to a higher tax bracket.
If your high-deductible health insurance plan is connected with HSA (health savings account), this is an ideal time to max it out. With the help of HSA, you can actually make tax-deductible contributions that you can take out tax-free for qualified medical expenses.
HSA contribution limits for 2016 are $6,750 for the family, $3,350 for singles, with a catch-up for age 55 and up of $1,000. And if you don’t need the money immediately, you can save it for future use as well.
Prepay Where It’s Feasible
If you can swing it, prepaying things like credit bills, property taxes, or state taxes can help in having additional deductions that can reducing your taxable income.
Harvest Capital Losses
While considering your year-end portfolio rebalancing, see if it is justifiable to take on some capital losses in order to cancel out the capital benefits. It will not only save you a significant amount in capital gain taxes, but it will also provide you with a chance to eliminate some of the losers, make a reinvestment in potential fields, and reset your asset allocation.
Using the Money in Your Flexible Savings Account (FSA)
FSA is different from HSA: you have to use the money that you put into it during the same calendar year.
As per the new rules, your employer may allow you to carry over $500, or may give you an extra two and a half months to use the funds. Either way, this is the right time to audit your balance in your FSA and put those funds to work.
Do you see yourself facing a big college tuition bill? If you can make your best efforts to pay it before the year-end, there are probabilities that you will be able cut down the pain a bit with a tax deduction of $4,000. The income limits for single filers it is $80,000, and for married filers it is $160,000, but is not available in the case where the married person files separately.
If you would like a tax season that is free of mistakes and frustrations, it’s imperative that you prepare. When you’re prepared, you also get rid of the risk of filing an amended return or receiving a notice of amendment from the IRS. The best thing to do if you have any questions is to seek the assistance of a professional and experienced tax professional to avoid any surprises.
Contribute to Charity
This is an ideal time to clean out your garage and closets, but make sure you know that you can write off donations to a charitable organization on one condition: you have itemized deductions. Filling your bags with household items and used clothes can add up to hundreds of dollars in tax deductions, but it can be a time-consuming and tiring task to value these donations.
If you make a donation of a used car costing over $500 to the charity, your deduction will be restricted to the amount that the organization will receive on selling the car. But, there are high chances of getting a bigger deduction on the basis of the fair-market value of the car if the charity uses the car for delivering meals to needy people.
Having Your RMD (Required Minimum Distribution)
This won’t save you from paying certain taxes, but it will certainly prove handy in saving you from a significant penalty. Ensure that you have taken your RMDs from the traditional IRAs and 401(k) by December 31st.
Your first RMD can act as an exception, which can be delayed until April 1st of the following year in the year you turn 70 and a half years old. This should be taken seriously. If you somehow manage to miss out the deadline, the penalty will be 50 percent of the amount that should have been withdrawn.
Sophia is a writer by profession. She has a knack for coming up with novel ideas. She currently writes for Debt Pro.co. She contributes ideas for latest technology and many more. She has also worked for scores of magazines, writing exciting content on various topics.