March 22nd, 2017
As the tax deadline is approaching, what can you do now to help save taxes for 2016?
Even though we are now in 2017, as you are preparing to file your 2016 taxes, there are a few strategies you can still utilize.
Contribute to a Retirement Account
If you or your spouse worked in 2016, you may be able to contribute to an IRA or a Roth IRA by April 18, 2017. You can contribute up to the greater of your 2016 earnings for yourself and your spouse or $5,500 if you are under age 50 and $6,500 if you are age 50 or over as of 12/31/2016. Whether this contribution is deductible depends upon your income and if you or your spouse is eligible for a retirement plan through your employers. If you cannot make a Roth IRA contribution or a deductible IRA contribution, you may be eligible for a non-deductible IRA contribution.
If you are self-employed, you may be able to contribute to a SEP (Simplified Employment Pension Plan). You have until the due date of your tax return, including extensions, to open and fund a SEP for the prior tax year. For example, if you are a calendar year filer, and extend, you have until October 16, 2017.
Education Credits and Deductions
If you contributed to a 529 plan in 2016, you may be able to take a deduction on your state tax return. 34 states currently offer a tax credit or deduction for 529 contributions. For example, NYS allows a deduction for up to $10,000 per married couple and $5,000 for single filers who make contributions to a NY approved 529 plan.
If you, your spouse or a dependent was enrolled in college in 2016, you may qualify for certain college credits or deductions. There are currently 2 education credits that may be available: the American Opportunity Credit and the Lifetime Learning Credit. Some additional federal deductions are the Tuition and Fees Deduction, Student Loan Interest Deduction and the Business Deduction for Work-Related Education.
If you itemize your deductions and you made charitable contributions in 2016, be sure to include those amounts on your tax return. Be sure to add up the amounts of both cash and non-cash contributions (i.e., clothing, household items, food, etc) which are in “good used condition or better”. For non-cash gifts over $500, you must file Form 8283, which asks for information regarding each non-cash gift. For most gifts over $5,000, an appraisal is required.
Cost Basis on Capital Gains
Over the last several years, the IRS has added improved reporting on mutual fund and investment gains and losses. When sold, the cost basis for securities purchased in the last few years is now included in the Form 1099 from the Custodian. For securities that you’ve owned for many years, the cost basis information may not be on Form 1099. Be sure you include your reinvested dividends when you report that transaction on your tax return. For example, ABC Mutual Fund that was purchase in 2003 for $10,000 may have reinvested dividends of $4,000 over the years, thereby increasing the cost basis to $14,000, NOT $10,000.
Remember to Include All of your Payments
Tax payments include withholding, estimated payments, extension payment, prior tax year’s overpayment if it was applied to the next tax year, excess social security tax withholding and certain refundable credits (i.e., earned income credit and child tax credit). There may also be some non-refundable credits (i.e., residential energy credits and the retirement savings contribution credit).
If you are an eligible educator, the Educator Expense Deduction allows for up to $250 of out-of-pocket, unreimbursed expenses to be deducted on your tax return. This is an “above-the-line” deduction which has the benefit of reducing your AGI (Adjusted Gross Income). This can be beneficial as “AGI” is used for the calculation of other deductions and credits.
Tax laws are consistently changing. In addition to our year-round tax planning, we work with a number of highly qualified accountants who can assist you, if you wish. Utilizing a good tax accountant can help you save both money and time. If you have not already started gathering your tax documents, we recommend you do so as soon as possible, as for most the tax deadline is April 18, 2017.