Nov. 30, 2016 – Kewaskum, WI – Here are some steps you can take before the end of the year to lower your 2016 tax bill. You should act before December 31 to increase your tax breaks.
- Defer your income
Income is taxed in the year it is received, but why pay tax today if you can delay paying it until tomorrow? If you are an employee it is difficult to postpone wage and salary income, but you may be able to defer a year-end bonus into the next year. If you are self-employed you can delay billings until late December which can ensure that you won’t receive payment until next year. You should only defer income if you think you will be in the same or lower tax bracket next year.
- Take some last-minute deductions
You can lower your tax bill by accelerating deductions this year. Charitable deductions are a great way to get a deduction and you control the timing. Pay your state estimated taxes by the end of the year. Other expenses you can accelerate include property tax bills, doctors or hospital bills.
- Sell off investments that are at a loss to offset gains.
A key year-end strategy is called “loss harvesting” which is selling investments to realize losses. You can then use those losses to offset any capital gains you may have.
- Contribute the maximum to retirement accounts
Try to increase your 401(k) contributions so that you are putting in the maximum amount allowed ($18,000 for 2016, $24,000 if you are age 50 or over). At the very least contribute at least the amount that will be matched by employer contributions. Also consider contribution to and IRA, you have until April 15, 2017 to make the contribution for 2016.
- Watch your flexible spending accounts
With the year end approaching, check to see if your employer has adopted a grace period permitted by the IRA, allowing employees to spend 2016 set-aside money as late as March 15, 2017. If not, you can do what employees have always done and make a last-minute trip to the dentist or optometrist to use up the funds.
Neil O. Narveson, CPA
Real Wealth Tax & Accounting LLC
PO Box 560
Kewaskum, WI 53040
part of The Silbernagel Group