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Year-End Tax Tips for 2016

With 2016 nearly at a close, it’s time to start thinking about tax year 2017 and considering some last-minute moves that might improve your overall tax position, both for this year and next. While our new President-elect is in a potentially strong position to enact his promise of lower tax brackets next year, the current income tax rates will still be in effect for your April, 2017 tax return filings. The standard deduction amounts remain at $6300 single/married filing separately, and $12,600 for married filing jointly. There is an increase in the standard deduction for head of household to $9300.

If, however, the President-elect does manage to lower the individual tax brackets, that means tax rates on your 2017 income may be lower so it could be worthwhile to consider deferring some income into 2017, if possible. Also, since some tax benefits such as itemized deductions and education/adoption credits get phased out depending upon a taxpayers adjusted gross income, deferring income may also make sense depending upon their current AGI.

There are several other considerations to keep in mind as you begin preparing for the upcoming tax season:

A number of tax incentives became permanent as a result of the PATH ACT of 2015. For individuals, these include:

The American Opportunity Tax Credit
The teachers’ $250 classroom expense deduction
The ability to deduct state and local sales tax instead of state income taxes
The exclusion for direct charitable donation of up to $100,000 from an IRA
The 100 percent gain exclusion on qualified small-business stock.

For businesses, the PATH ACT made these incentives permanent:

The reduced five year recognition period for S corp built-in gains tax
15-year straight-line cost recovery for qualified leasehold improvements, restaurant property and retail improvements
Charitable deductions for the contribution of food inventory

Maximizing retirement account contributions is almost always a good idea. If your employer offers matching, then maxing out contributions to a 401(k) is generally a no-brainer. Even without matching funds,sequestering income in 401(ks), IRAs, Keoghs and other similar funds is still a great deal.

Even in the current bull market, you will want to review your investment portfolio for underperforming duds. Taxpayers with large amounts of taxable gains in 2016 may want to offset some of those by realizing losses to lower overall capital gains exposure.

Finally, taxpayers will want to be aware that many mutual funds make capital gains distribution in December. You’ll want to keep that in mind when buying or selling since a major distribution may add to your eventual tax bill.

If you have any questions or would like to know how these or other potential changes may affect your personal tax position, please don’t hesitate to contact your HW& and Associates professional. We can review your current and projected tax picture and recommend any adjustments on withholdings or investments to provide optimal benefit to both you and your beneficiaries.

December 13th, 2016

Posted in Featured,Tax

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