Even though the end of the year is fast approaching, you still have time to trim your 2016 federal income tax bill. Here are suggestions.
State and local income taxes. If you prepay certain state and local taxes, you can claim the deduction on your 2016 return. Caution: Analyze your exposure to the alternative minimum tax before accelerating these deductions.
Charitable donations. When you itemize, you can generally deduct the full amount of charitable donations you make by December 31, 2016, including those you put on your credit card and pay in 2017.
Capital gains. Consider selling appreciated investments if the gain on the sale will be absorbed by prior losses or if you will benefit from the preferential long-term capital gain tax rate available when you own assets for more than a year.
Capital losses. By “harvesting” capital losses from depreciated securities at year-end, you can offset other capital gains plus up to $3,000 of ordinary income.
Required minimum distributions. Verify that you have withdrawn the right amount from your qualified plans and IRAs to avoid a 50% tax penalty.
Dependency exemptions. Review how much support you provided to dependents in 2016. Generally, you can claim a dependency exemption for a qualifying relative if you provide more than half of the financial support for the year.
Medical expenses. When you itemize, you can claim deductions for unreimbursed medical expenses that exceed 10% of your adjusted gross income. Move elective medical and dental procedures, such as routine exams, into 2016 if those expenses will help you clear the 10% threshold.
Indiana Taxpayers. Review Indiana’s Section 529 college savings plan for tax credits up to $1,000 per year.
Estimated taxes. Avoid an underpayment penalty by paying at least 90% of your 2016 tax liability or 100% of last year’s liability (110% if your adjusted gross income exceeded $150,000).
Please call us to discuss planning ideas for your specific tax situation.
For more information, call us at (219) 769-3616 with your questions, or email them to email@example.com.