Excerpted from J.K. Lasser’s Your Income Tax 2017, here are some simple steps you can take right now to decrease your 2016 tax bill. (Hurry: These must be done before the ball drops in Times Square).
Taxes? Not on the radar today?
The holiday season is in full swing and you’re probably in a party-planning frenzy or just spending quality time with friends and family right now. The last thing on your mind? Taxes.
For most people, sparing a thought for the upcoming tax season is the ultimate “bah humbug.” But this mindset could cost you big when April 15th rolls around, warns tax and business attorney Barbara Weltman.
Not Too Late to Lower 2016 Tax Burden
“There are some very simple steps you can take right now, before the end of the year, that can make a big dent in your tax burden,” Weltman said, who is the spokesperson for J.K. Lasser’s Your Income Tax 2017 (Wiley, October 2016). “It’s crazy that people miss so many opportunities to save money just because they’re disorganized or have procrastination issues.”
The book is written to help the average taxpayer successfully navigate the filing process. With full coverage of all changes and adjustments to the tax laws—including new deductions and credits—it provides clear, plain-English explanations that help readers decipher the tax code and reduce what taxpayers owe.
End of Year Tax Tips
Before it is too late, here are some tips to help you start checking off for end-of-the-year tax-relief:
1. Make charitable contributions if you’re an itemizer. Charging gifts by credit card or mailing a check before the end of the year nails down a charitable contribution deduction for 2016.
2. Pay outstanding medical bills. If you itemize, you can deduct amounts charged this year or checks mailed before the end of the year. For those age 65 and older, 2016 is the last year for a 7.5 percent adjusted gross income threshold (it’s set to go to 10 percent of AGI next year).
3. Take your required minimum distribution (RMD). Those who are required to take distributions from IRAs and qualified retirement plans but fail to do so face a 50 percent penalty. Those 70½ and older can transfer from an IRA up to $100,000 directly to a public charity; it satisfies the RMD and is tax-free.
4. Use up your FSAs. If you have a medical FSA or dependent care FSA at work, use up your 2016 contributions. For a medical FSA, check whether you have a grace period or any carryover.
5. Check eligibility for making a contribution to a health savings account. As long as you’re covered by a high-deductible health plan for all of December (and continue in such plan), you can make a full year tax-deductible contribution for 2016; no itemizing is required.
6. Take losses on securities. The stock market is open on December 30. Losses can offset gains and then up to $3,000 of ordinary income; excess losses can be carried over. Watch the wash sale rule.
7. Maximize your retirement savings. Check with your employer about contributing to your company plan (maximum 401(k) contribution is $18,000, or $24,000 if 50 or older).
8. Prepay college tuition for a semester starting in the first three months of 2017. This will allow you to claim an education credit on your 2016 return.
9. Discuss deferred compensation arrangements for year-end bonuses. Lower tax rates in the future can mean big savings.
10. Increase tax payments to cover anticipated taxes. This can be done by asking an employer to take a lump sum from the final paycheck or make/increase the final estimated tax payment in January.
“Do as many of these steps as you can right now,” Weltman said. “When April 15th rolls around—and it will be here before you know it—you’ll be glad you took the initiative.”