Although the deadline for tax returns isn’t until April, the month of December is your last opportunity to make decisions that will positively influence your tax deductions and credits. We encourage our clients to consider these high-impact activities as the year comes to an end.
You’ve still got time. Get busy!
Fund your Health Savings Account (HSA).
HSAs offer a great opportunity to get a last-minute tax deduction. Many people are unaware they can add to the amount deposited by their employer or even start their own
account. You can contribute to your HSA by requesting a deduction from your paycheck or making a payment directly to your HSA administrator.
HSAs are beneficial for a few reasons. First, HSA funds are more accessible in a medical emergency than those in a 401k or IRA plan. Second, the earnings are tax-free if used for medical expenses. And lastly, anyone with a high-deductible health insurance policy qualifies—regardless of income. The contribution limits for 2016 are $3,350 for an individual and $6,750 for a family. People 55 or older can contribute $1,000 on top of these amounts.
Clean out your closets.
Most people have a lot of extra stuff cluttering up their homes and spaces. Now is the perfect time to donate it! You are allowed tax deductions for the fair market value of clothing, toys, furniture and other items you give away. Visit goodwill.org for estimated values. Create a list and assign values as you pack your donation boxes, so you don’t forget what you’re donating. Then, attach the dated, signed receipt you receive from your charity to that list and bring both to your tax appointment. A receipt is required; a photo is a good idea but optional.
Max out your employer retirement plan.
If you’re expecting a bonus this year, plan to put all—or a good chunk of it—into your 401k or SIMPLE plan at work. Check with your human resources department for requirements, and make sure you let them know your intentions before they’ve finished processing your bonus check. While individual IRAs can be funded all the way up to the April 15 deadline, employer accounts must be funded through payroll, which means before your last paycheck of the year is calculated.
Donate your required minimum distribution (RMD).
A relatively new tax law allows taxpayers over the age of 70 ½ to donate their RMD directly to a charity to avoid paying taxes on it. Special and specific rules apply, so call your tax advisor for details before initiating this transaction.
Offset some winners with some losers.
The IRS allows a $3,000 maximum capital loss each year that can be used to offset gains. For instance, if you have a stock with a $4,000 gain and another that will generate a $7,000 loss, you can use the loss to completely offset the $4,000 winner and still get a $3,000 loss deduction on your taxes. This applies to stock accounts outside of your retirement accounts, so plan accordingly and schedule a meeting with your financial advisor to get advice before selling.
If you’re searching for a trustworthy tax partner who can help maximize deductions, reduce tax errors and ease tax stress, we’d love to hear from you! We have more than 20 years of experience preparing income tax returns for individuals, corporations, LLCs and partnerships.
