With the end of the 2016 calendar year quickly approaching, reviewing your specific tax situation may be tax-wise to help reduce your income taxes as well as possible underpayment of tax penalties.
Year-end planning techniques to reduce your taxable income or increase your tax saving deductions may be available for you to consider before the end of the year. Additionally, if you are concerned that you will have a large tax balance due next April, preparing a year-end tax projection can help you prepare for and budget for the funds needed to pay the balance owed.
Some tax issues to consider for this past year may be:
- Did you have a large or unexpected tax balance owed in 2015 and think 2016 may be similar?
- Did you realize significant capital gains or unexpected investment income this year?
- Did your wages increase significantly in 2016 and you are unsure if your tax withholdings will cover the additional taxes on this increased income?
- Did you receive significant 1099-misc income, consulting income, or other self-employment income in 2016 and paid no or insufficient estimated taxes?
- Did you pay off your mortgage in 2015 or 2016 and no longer have a mortgage interest deduction?
During December, you should also evaluate whether you’ll save any taxes by postponing 2016 income or deductions into 2017 or by accelerating 2017 income or deductions into 2016. While many factors should be evaluated prior to making your final decision, a few items to keep in mind are as follows:
- For 2016, a single person will itemize once allowable deductions exceed $6,300 and a married couple will itemize once allowable deductions exceed $12,600.
- A taxpayer is no longer subject to Social Security or self-employment taxes once wages and net self-employment earnings exceed $127,200 in 2017, up from $118,500 in 2015 and 2016.
- Miscellaneous itemized deductions, such as unreimbursed employee business expenses, are only deductible to the extent they exceed 2% of adjusted gross income (AGI), and are phased out if you’re subject to the AMT. Items paid with credit cards are deductible in the year charged.
- Medical and dental expenses are deductible to the extent they exceed 10% of AGI, and are deductible in the year paid.
Please contact our office in the next few weeks if you would like us to prepare a year-end tax projection for you. Being aware of your tax situation will enable our staff to advise you of year-end tax saving strategies to consider that may be available to your unique situation.