With the election of Donald Trump and with a Republican controlled Congress, American taxpayers can look forward to reduced income taxes, perhaps as early as next year. For most folks, your tax planning strategy should be income deferral, to lower your tax bill by pushing as much income as possible into future years and taking as many deductions as possible for the current year.
For example, if it is possible, delay the deposit of December income until January the following year. Small-business owners, along with those who earn commissions, may have more flexibility. A consultant owed for work in 2016 might wait until January to bill her clients.
– Wait until January, to sell a stock that’s done well in December and for investments that have done poorly sell the stock in December, thus booking a loss that can offset capital gains realized from other investments.
– If you’re living off a 401(k) or IRA, it might make sense to stop taking money from those accounts through the end of the year, as long as you have enough cash to meet your needs. – Medical expenses: If you’re scheduling an expensive procedure, you might try to get it done before the end of the year, when the medical deduction might be more valuable than in 2017. If you have not maxed out your Healthcare Savings Account (HAS) contribution, deductible from taxable income, let this serve as a reminder! – Property: You can get a deduction on your federal taxes for any local taxes you pay. If you have any flexibility in when you pay property taxes or state income taxes, consider shifting those deductions into 2016. The same is true of the mortgage interest deduction. An extra mortgage payment in 2016 might make sense.[2] – Charitable contributions: Carefully time charitable contributions to maximize tax benefits. For instance, if you give a certain amount to a charitable organization every year, consider doubling it this year and taking less the next year. For those who own businesses, you have a variety of options for delaying income and maximizing deductions. For example, if a business is planning to buy equipment, it might consider making those purchases this year to boost deductions against 2016 taxable income. Business owners have more flexibility in when they bill clients and pay employees, too. They might fast-forward employee bonuses into 2016, instead of early next year, to lower their taxable profits in 2016. Maximize contributions to your IRA, 401K, SEP plan, Simple, and any defined contribution plan that gives you the option of increasing your contributions. If you do not have one of these plans in place, please give me a call ASAP. Some plans must be in place by December 31 or you lose the ability to defer income. Trusted Financial Advisors does not dispense tax advice nor are we enrolled to practice before the Internal Revenue Service. Be sure to consult with your tax advisor before acting upon any of the suggestions above. (My thanks to Sarah Nagel, CPA in Laguna Hills, CA. for her help in preparing this review. You can reach Sarah for tax advice at [email protected]) [1] While I rarely encourage people to use credit cards, they may offer a way to reduce your need to take money from IRA’s until January when you can take out those funds and pay off the cards, thus avoiding interest charges! [2] Still, there is some talk of simplifying the tax code, specifically of removing many popular itemized deductions, such as state income tax and or property tax.
