Don't wait until December 31st to start thinking about taxes... it may be too late to take advantage of year end strategic tax planning. With the holidays rapidly approaching and less than two months left in 2017 (where did the year go?!), it's time to begin looking at year end tax moves. Here are 6 C's to strategically plan for tax time.
Did you miss Spring cleaning? With the weather finally beginning to feel like Fall in WNY, this is a great opportunity to go through that pile for donations you've been meaning to. Making way for all of the family and new items that come during the holiday season is a great excuse to get to clearing out! Not to mention that donating clothing, furniture, household items and other cash donations all help increase your tax breaks if you itemize on your tax returns. Just remember to keep all receipts for your tax advisor.
This is also a time to take a look at any cash donations you may make. Both of these charitable donations help.'Tis the season of giving... and giving away!
Contributions To Retirement Plan
One of the biggest benefits to a retirement plan – besides saving for retirement - is the tax benefit. You can reduce your taxable income by electing to contribute more into your retirement plan. In 2017, the 401(k) Plan contribution limits are $18,000 for working individuals under age 50 and for those 50 and older a total of $24,000 can be put away tax deferred. This decreases your taxable income at the end of the year.
If you are able to financially do so, increase your deferral amounts to help capitalize on the tax benefit of your retirement plan. Be mindful that with company 401(k) plans, elected deferral amounts will require the weekly or semi-weekly deferral amount to be changed through payroll. Contributions cannot be done through savings you have accumulated in your bank account. This is why it is extremely important to take a look at this before it is too late. Analyzing this now gives you time to make any adjustments to your elected deferrals.
Confirm IRA Required Minimum Distributions
The IRS requires individuals to take minimum distributions from their traditional IRA's by April 1st following the year an individual reaches age 70 ½. Failing to do so results in some hefty penalties. In subsequent years an annual Required Minimum Distribution is necessary to avoid any tax penalties. Confirm first whether these distributions are required in your situation given your age and then whether or not they have already taken place. Consult with your Financial Advisor if you have any questions.
Consider Early Tuition Payment
If you are making tuition payments for yourself or a dependent child, you are able to take advantage of tuition tax breaks. Consider paying the tuition bill that is due in January early. This may help you to qualify for the American Opportunity Tax Credit or the Lifetime Learning Credit.
Check Flexible Spending Accounts
Before the end of the year arrives, check your flexible spending account. IF you have one, this is a “use it or lose it” type of account. Any unused amounts after December 31st are lost. If you have a balance in there, use it. Stock up on any medical supplies, schedule end of year doctors appointments or purchase other qualifying medical costs. Look at this early and plan accordingly.
Capital Gains versus Capital Losses
If your investment portfolio is showing that you have a significant amount of realized capital gains, you may be looking at facing capital gains taxes. Consult your financial advisor to discuss “tax loss harvesting” where you use capital losses to offset capital gains. This allows you to avoid incurring taxes on the total amount of realized gains. Also, if you have more than $3,000 in capital losses above and beyond any capital gains, the IRS allows you to offset your taxable income by that amount.
Go through these 6 C's and see what is applicable in your situation. If you are unsure of what measures to take, consult with your financial or tax advisor. Your advisor will know your specific situation and be better able to guide you on what steps to take.
If you're in the WNY area and are looking for a financial advisor, our team at SENIOR Financial & Tax Associates has been helping individuals and families with coordinating their financial and tax planning needs. Call today to begin the discussion about your situation! 716-662-4470
Chelsea Maderer is a Financial, Investment and Tax Advisor in the Buffalo-WNY region. She helps individuals and families to Clarify their needs and goals, Solve their problems, and Simplify their life to avoid the common mistakes that get in the way of enjoying life and retirement.
For more information please visit: http://SFTAweb.com.
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