End of the Year Tax Tips
Although there are many changes to the tax code for 2016, recently released tax savings tips by The National Society of Accountants indicates that the current individual income tax rates of 10, 15, 25, 28, 33, 35 and 39.6 percent stay in effect for 2016 and your tax rate depends on your income (i.e. the more you make, the more you pay). Additionally, the standard deduction remains the same as 2015 for all filing statuses except head of household (HOH). The HOH filer’s standard deduction has been increased to $9,300, a change of $50 over the 2015 amount. Here are some things to keep in mind regarding year-end tax savings.
- Defer (or postpone) income whenever possible and increase deductions as much as possible.
- Spread recognition of your income between years by having your employer pay you your year-end bonus in January of the following year.
- Maximizing both deductible retirement contributions and allowable retirement distributions for this calendar year.
- Harvest capital losses in order to offset capital gains.
- Postpone the redemption of U.S. Savings Bonds.
- Delay your year-end billings and collections.
- Delay corporate liquidation distributions (full cash-value payment for all a company’s stock you hold) until 2016.
- Pay your last state estimated tax installment in 2015.
- Pre-pay real estate taxes or mortgage interest.
- Make a contribution to your favorite charity from your IRA. Tax-free distributions, up to a maximum of $100,000 per taxpayer each year from IRAs to public charities, have been allowed as an alternative to reporting the income and taking an itemized deduction. You must be 70½ or older to do this.
- Retirement savings: You can contribute up to $5,500 to an individual retirement account 2015 and, if you’re 50 or older, $1,000 more in catch-up contributions. You also have until April 15, 2016, to make an IRA contribution for 2015.
- Delay until 2016 converting your traditional IRA to a Roth IRA, which incurs taxes.