Category: Individual Tax Planning
Posted: December 2017
Tax reform creates uncertainty for many as the end of 2017 approaches. Using some of these planning techniques can help you reduce your tax burden.
Postpone income and accelerate deductions. There is much discussion about lower brackets and reduced deductible expenses in the future. Whatever may happen, reducing taxable income in 2017 could save current tax dollars. Consider prepaying deductible expenses such as charitable contributions, medical expenses, and property taxes. If these expenses are eligible and paid with a credit card, they can be deducted in the year of the charge. Some employees have the ability to defer year-end bonuses to 2018, and self-employed individuals could consider sending bills to clients after the first of the year. Tax benefits associated with reduced adjusted gross income (AGI) may include the ability to make Roth IRA contributions, child tax credits, higher education credits, and deductions for student loan interest.
Sign up for health insurance. The Affordable Care Act is still in effect. If you are not otherwise covered by health insurance and haven’t signed up for a health insurance plan this year, do so before December 15 to reduce or avoid any penalty. You may be able to claim the premium tax credit if you meet certain requirements.
Manage your investment gains and losses. Taxpayers in the lower brackets of 10 to 15 percent (married couples with taxable income less than $75,900 and single taxpayers with taxable income below $37,950) may want to take advantage of the zero percent tax on dividends and long-term capital gains. Taxpayers in higher brackets should consider avoiding short-term gains (which are taxed at ordinary rates), and reducing long-term gains by selling investments with accumulated losses. As always, the best tax may not be the best investment decision.
Consider charitable contributions beyond cash. Keep a detailed record of your contributions to organizations such as Goodwill and the Salvation Army. Use garage sale or thrift store prices to assign fair market values to items you donate. A deduction is also allowed for charitable mileage and some out-of-pocket expenses. If you are required to take minimum distributions from an IRA, you can donate all or a portion of this to a qualified charity. This can be a benefit at tax time for certain calculations based on income, even if you are not able to itemize.
Set up a health savings account (HSA). Contributions are deductible, earnings are tax-deferred, and withdrawals are tax-free when used to pay medical bills. You must participate in a high-deductible health plan and cannot be enrolled in Medicare. HSA owners are not required to disburse funds for current medical expenses. If the account owners cover current bills, the account can grow and be used to pay medical bills in future years, even into retirement.
Maximize your retirement plan contributions. If you are a business owner, think about setting up a retirement plan (if you don’t already have one). Consideration must be given to coverage of employees, as well as the owner. Self-employed individuals can set up a retirement plan and deduct the contribution in 2017. The contribution must be paid prior to filing taxes in 2018.
Adopt efficient family tax strategies. Parents who own businesses may realize some tax benefits by employing their children. Unincorporated businesses are relieved from FICA taxes for children under age 18. The child could also be eligible for retirement benefits or contribute to an IRA or Roth IRA.
Please contact our office for advice on which of these suggestions might be best for your situation.
Bottom line—we help yours grow!
