There are only a few weeks left of the calendar year, but you can still make an impact on your 2016 income taxes. Here are some year-end tax tips and suggestions for organization as you begin your tax preparation. Please contact us if you have any questions about these or any tax-related topics.
- Maximize your pre-tax contributions to retirement funds. 401(k) contributions must be made in 2016, but contributions to an IRA can be made up until April 15th.
- If you’ve reached the age of 70 ½, be sure to withdraw the Required Minimum Distribution (RMD) from any IRA, SIMPLE IRA, SEP IRA, or other retirement plan account to avoid penalties. Any withdrawals are considered taxable income, except for any portion that was taxed previously or that can be received tax-free. Roth IRAs do not require withdrawals.
Americans are on track to set another charitable giving record in 2016. The holiday season is peak time for giving, but be sure to donate before December 31 if you’d like to take advantage of the benefits for this tax year. Some things to keep in mind:
- Give to an organization that is meaningful to you. Want to learn more about an organization or charity before you donate? Use resources such as Charity Navigator, which rates charities on a number of different criteria and provides information and tips for donors, including Tax Benefits of Giving and Questions to Ask Charities Before Donating. Another resource, Guidestar, provides up-to-date information on thousands of non-profit organizations.
- Keep receipts for all donations, including any cash given. Don’t forget about donations made through payroll deductions. Keep track of out-of-pocket volunteering expenses, such as transportation costs or supplies.
- Deduct the fair market value from any items received as an incentive, such as a coffee mug, magazine subscription, or tickets to a play.
- Donations given to individuals do not qualify as deductions, for instance, money given to a homeless person or through a campaign to raise funds after a fire or other tragedy.
- Individuals age 70 ½ or older may make Qualified Charitable Distributions (QCDs) directly from their IRA accounts. This may eliminate the need to take a Required Minimum Distribution (RMD). Call us to learn more about this tax law, made permanent in December of 2015.
- When donating items such as property, household goods, used clothing, vehicles, boats, and stocks, use the fair market value to determine the amount to deduct. The IRS provides a helpful publication with information about donating property and to help you determine fair market value. Be sure to obtain a receipt and keep a detailed record of items donated, including photos.
Flexible Spending Accounts
Check the balance of your Flexible Spending Account. Any funds not used by the end of the year will be forfeited unless your employer offers a grace period or carryover option. Verify the terms of your FSA with your employer. If you must use your funds by December 31, buy a new pair of glasses, schedule exams or dental work, or refill prescriptions.
- Be aware of any applicable tax credits. These may include childcare, mortgage interest, education, electric vehicle, and energy credits.
- This year’s gift tax exclusion allows you to give up to $14,000 apiece to a child or other person without gift tax consequences. Your spouse can gift the same amount to the same individual.
- Your investment portfolio could provide a number of tax-saving opportunities. Call us to discuss your options.
In addition to these end-of-the-year suggestions, take the time now to start your tax preparation organization if you haven’t already. Gather receipts and other necessary paperwork. Important tax documents will begin to arrive in January. Contact us to discuss your tax preparation and tax planning needs and to schedule an appointment.