For real procrastinators, the end of 2016 is a long way off. December 31 is the last day to take action on this year’s income tax liability. It’s not the last minute yet, but it’s coming up! Soon, it will be too late to act and lower that tax bill.
Four potential tax-saving actions to take before the year ends are:
- Maximize Retirement Savings
Most retirement savings plans must be funded by December 31. A SEP IRA or a defined benefits plan must be established before year-end and funded before the returns are filed for that tax year. Contribution limits vary by plan type. Deductible amounts depend on taxpayer circumstances. Taxpayers over 50 can make higher “catch-up” contributions.
More details about plans and contribution limits are on the IRS website at: http://bit.ly/1UBjXJf
- Manage Gains and Losses
Overall, financial markets performed well in 2016. The gain on sales of appreciated stocks, mutual funds, or other assets are taxable. Selling assets for a lower price than the purchase price results in a tax loss. Losses can be used to offset taxable gains. Losses in excess of gains are deductible up to $3,000 ($1,500 for married filing separately).
- Charitable Contributions
Cash and non-cash contributions made to a qualified charitable organization are deductible for taxpayers who itemize their deductions. To be deductible, contributions must be made to organizations designated as tax-exempt by the IRS. Amounts of $250 or more are required to be acknowledged in writing using language specified by the IRS.
More details about qualified charities and deduction rules are on the IRS website at: http://bit.ly/2g9VDPl
- “Use or Lose” Benefits
Changes in tax laws that impact tax-preferred benefits and other items occur regularly. Those changes often impact taxpayer liability. Examples include Health Savings Accounts and Residential Energy Credits. The IRS website is a great resource to learn about the impact of tax law changes by performing a word search at www.irs.gov.
With only a few weeks left in 2016, it’s almost time for Real Procrastinators to take action on that income tax bill. Don’t wait – 2017 is almost here.