- Before year-end, accelerate your charitable contributions and pay real estate taxes, state income taxes and deductible medical expenses early.
- Always consult with a trusted advisor before pulling the trigger on any of the year-end tax tips below.
- Look for capital gains in the 0 to 15 percent tax bracket and take advantage of the $14,000 annual exclusion on gifts to children and grandchildren.
- If you’re a business owner, accelerate your operating expenses and highly depreciated capital expenditures.
Every once in a while, I find myself looking over a well-off individual’s tax return that shows they have no taxable income. However, the person could have generated even more tax-free capital gains or IRA distributions (if they were over age 59 ½) and still showed zero taxable income. Unfortunately, they hadn’t done any planning during the current year to take advantage of these kinds of tax mitigation strategies. Don’t let this happen to you. In fact, I’ve got six powerful tax-saving tips for you to consider before year-end.
- Accelerate charitable contributions that are deductible. Maybe you want to accelerate some of the contributions that you had planned for 2017 into tax year 2016.
- Pay real estate taxes, estimated quarterly state income taxes or deductible medical expenses early, i.e., before year-end.
- Make IRA distributions directly to charity before year-end. If you’re over 70 ½ and have required minimum distributions, Congress has made permanent the rule allowing you to give directly to charity and pay no taxes on those gifts. Again, you want to do this gifting before year-end.
- If you are in the 15% Federal tax bracket or lower, the tax on your capital gains is zero. Tax bracket levels will be different based on one’s filing status. Consult your advisor for help before generating any new gains.
- Take advantage of the $14,000 annual exclusion for gifts to each of your children and/or grandchildren before year-end. This is one of those “use it or lose it” options, so take advantage of such gifting if you can do so before year-end.
- (For business owners) Accelerate operating expenses and major highly depreciated capital expenditures into 2016. There’s a good chance these strategies will help reduce the taxable profit on your business for the current tax year.
Before pulling the trigger on any of the tax tips above, make sure to consult with a qualified tax preparer or accountant. The rules can get complicated if you fall under the alternative minimum tax threshold or face other restrictions that won’t allow you to leverage these techniques. Contact a qualified tax preparer or accountant before trying to take advantage of any of these tools, but you can’t go wrong by being proactive this time of year.