7 Year End Tax Moves To Make Now
The month of November is approaching, which means that there is about 2 months left to write the story of your 2016 income tax return. These moves may not apply to everyone, but it is good to have knowledge of them.
1) Plan Your Itemized Deductions: Will a higher deduction amount benefit you more next year than this year? If you suspect your income may be substantially higher in 2016 vs. 2017, plan to push more deductions to the higher income year. You can do so by utilizing your charitable deductions, mortgage interest, and real estate taxes.
2) Fatten Up Your 401K Or Simple IRA: If you are not reaching the limit of contributions to your employer sponsored retirement plan, start accelerating deposits into it. This strategy will lower the amount of your taxable income for 2016. Of course, only do so if you do not need to utilize the extra take home pay.3) Convert Your IRA To A ROTH: Do you expect to move up tax brackets sometime in the near future? If you convert your traditional IRA to a ROTH IRA now, you will pay the tax at your current tax bracket instead of your higher tax rate in the future.
4) Sell Stock: First of all, you should never base your investment strategies around tax. However, if you were planning on selling a stock sometime soon, now may be the time to do so. You can sell a stock at a loss to offset some of your income, or sell a stock at a gain if you believe you will be jumping to a higher tax bracket in the future. Consult with your financial adviser and tax adviser before doing so.
5) Avoid Penalties: The IRS and State penalize you if you do not pay in enough tax throughout the year. “Enough tax” means that you need to pay in at least 100% of what your 2015 tax liability was or 90% of your 2016 tax liability. To avoid penalty, you can catch up by making an estimated payment or changing your W-4 withholding.
6) Protect your 2016 Tax Refund: The IRS has announced that 2016 refunds will be delayed. If you don’t want to wait for your refund, take some of it now. If you believe you have a refund coming, adjust your W-4 to receive more take home pay and pay less tax for November and December.
7) Review Your Financial Statement: This is for the business owners out there. Check what your financial statement says for the year thus far. Are you going to be showing a large profit? If so, think about making purchases for supplies or equipment that you may need in the near future. Reduce the amount of tax you pay now by purchasing things you will need later.
As mentioned earlier, not all of these apply to every taxpayer. If you are curious to see if one of these strategies may help you, please consult with your tax adviser before making the move.
Winter is coming, make some tax moves.
Nicholas Hammernik, EA
Hammernik and Associates helps individuals in Milwaukee, Waukesha, Brookfield, New Berlin, Wauwatosa, West Allis, and Southeastern Wisconsin with tax preparation and tax planning. Hammernik and Associates helps small businesses in Milwaukee, Waukesha, Brookfield, New Berlin, Wauwatosa, West Allis and Southeastern Wisconsin with accounting, payroll, business coaching, and QuickBooks.