Year-End Tax Planning

Tax Tips for 2017: How to Make Tax Season Easier for Yourself Next Year

Best Tax Tips for 2017 Tax SeasonIf you are like many of us, you are breathing a huge sigh of relief  that the last pesky K-1 came in and you have sent all the tax documents to your accountant.

Or, if you “do-it-yourself,” you have wrangled with your tax software to the point where you have no error alerts. Yay!

No one likes to do taxes, except maybe for accountants or why ever would they have chosen that for a career?

Not only is the document gathering and fact checking time consuming, but the fear of doing something wrong or filing late keeps people up at night. Filing taxes is never going to be a favorite chore, but there are steps you can take to make it easier for yourself next year.

Here are my seven tips to chilling at tax time next year:

1. Don’t stress about getting your taxes done “early.”

You need to wait until your employer, various banks and other institutions send you tax documents before you can finish your taxes. These institutions have deadlines which they mostly keep and you just have to be patient.

As long as you file by the deadline date in April, or properly file an extension, you won’t pay any penalties or extra tax.

2. Find a good software program that will let you identify and track expenses.

Log in monthly and categorize your tax-related items. At year-end, you just need to click a couple of buttons to produce a tax expense report. Voila!

3. If you don’t want to use a software program, be diligent about saving receipts or writing down tax-deductible expenses.

Either deposit them into a shoebox or better yet, slip them into separate envelopes marked: charitable deductions, property taxes, investment-related expenses. You’ll be so happy you did when tax season rolls around again.

4. If you plan on hiring an accountant to do your taxes, don’t wait until March to do it.

It’s best to establish a relationship as early as before year-end. Accountants get busy the few months before the tax deadline in April.

5. If you plan on working with a financial planner, hire someone earlier in the year.

As a financial planner, I also get a lot of people contacting me for planning in March. Doing taxes forces us to take a hard look at our finances, and I get it – it’s a motivator to get the help we need. Unfortunately, planners also get busy during tax season, so it pays to think about hiring someone earlier in the year.

6. Use one credit card for employee-related business expenses.

If you own a business or have lots of employee-related business expenses that you can deduct, use one credit card for these charges for easier tracking later.

7. If all else fails, you can file an extension.

For 2016 taxes the deadline for filing is October 16, 2017.  But, remember that you still have to estimate how much tax you owe and send in a check with the extension. There are no free rides when it comes to the IRS.

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A Little Year End Tax Planning with Your Holiday Punch

HD-200911-r-pomegranate-punchOr,  8 Year End Tax-Related Deadlines and Things to Think About

With the busyness of the holiday season, it’s easy to forget about things like tax planning. After all, we’d rather focus on having fun with our friends and family! However, there isn’t much you can do to improve your tax situation after December 31st for 2015, so now is the time to do a little planning so as not to miss out on tax-saving or retirement saving opportunities and avoid penalties. (After all, the IRS has ways of knowing who has been naughty!).

1. Roth IRA Conversions: There were income limitations on converting regular IRA’s to Roth IRA’s, but no longer, now anyone can convert IRA’s to Roth’s as long as they are able and willing to pay the tax on the conversion. Why would you want to do this? Because converting to a Roth IRA will guarantee you will owe no income tax on the funds if withdrawn during retirement because you pay the tax now. For example, if your income dropped in 2015 due to a job change, you might consider converting some of your IRA to a Roth because you will be in a lower tax bracket and pay less taxes than you might in future years. The deadline for conversions is December 31, 2015, but you will want to do this by at least December 22nd to make sure the paperwork gets processed with your custodian.

2. Establishing a New Qualified Retirement Plan:  If you are self-employed and want to establish a qualified plan such as a 401(k), money purchase, profit-sharing or defined benefit plan, it must be set up by December 31st. Many people confuse this deadline with the SEP IRA deadline that can go into the next year, including extensions.

3. Max Out Qualified Plan contributions. If you contribute to a 401(k) or 403(b) at work and have not contributed the maximum and are able to, talk to your payroll department to increase your contribution before December 31st. For those under 50, the maximum contribution is $18,000 and for those over 50, the maximum contribution is $24,000. At the very least, try to contribute up to any employer match.

4. Take RMD’s (Required Minimum Distributions) on retirement accounts if you have reached age 70 ½. The minimum distribution rules apply to traditional IRA’s, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, 457(b) plans, profit sharing plans and other defined contribution plans. If you don’t take the distributions or don’t take enough out, you may have to pay a 50% excise tax on the amount not distributed as required.

5. Take MRD’s From Inherited IRAs. If you have inherited an IRA from someone other than a spouse, you must take minimum required distributions beginning in the year after the year of death of the original owner and by December 31st of that year. To calculate the MRD, the IRS has a Single Life Expectancy table and each year you would subtract one year from the initial life expectancy factor. Fortunately, there are on-line calculators to help you do this!

6. Review Your Charitable Contributions. If you itemize deductions and are charitably minded, you will want to donate what you plan to before December 31st . You may deduct an amount up to 50% of your adjusted gross income, but 20% and 30% limitations apply in some cases. Good to know: donations made by check are considered delivered on the day you mailed it.

7. Donate Highly Appreciated Assets To Charity. Any long-term appreciated securities, such as stocks, bonds or mutual funds may be donated to a public charity and a tax deduction taken for the full fair market value of the securities up to 30% of the donor’s adjusted gross income. In addition to the tax deduction, the donor avoids any capital gains taxes. Probably the easiest way to do this is to set up a donor-advised fund –it’s like a charitable savings account: a donor contributes to the fund as frequently as they like and then recommends grants to their favorite charity when they’re ready.

8. Do Some Tax-Loss Harvesting. This is the practice of selling a security that has experienced a loss. By selling the security and taking the loss, an investor can offset taxes on capital gains or up to $3000 on ordinary income. The sold security can be replaced by a similar one, maintaining the optimal asset allocation and expected returns. When doing this, watch out for the wash-sale rule: your loss is disallowed if, within the period beginning 30 days before the date of the loss sale and ending 30 days after that date, you acquire a substantially identical security.

And, don’t forget to take a sip of that punch!

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