As year-end approaches it is critical to begin considering your 2016 tax returns and determine a strategy including possible action items for keeping more of what you earn this year!
Determining “what’s new” in regards to tax laws is a good first step in the year-end planning process.
Shift income and deductions into the more advantageous year.
If you expect to be in a different tax bracket next year, consider shifting income to the year when you are in the lower tax bracket so that you pay taxes on it at a lower rate and shifting deductions into the year when you are in the higher tax bracket so that you get a larger reduction in your taxes.
If you expect to be in the same tax bracket next year, it is generally a good idea to defer income into next year and accelerate deductions into this year.
Find out if you may be subject to the AMT.
Before making any year-end tax moves, find out if you may be subject to the alternative minimum tax (AMT) – an alternative method of calculating tax that eliminates or reduces some of the deductions and exclusions from income that are allowed when calculating tax the regular way. If you suspect that you may be subject to the AMT, please contact our office ASAP for AMT-specific advice since some of the year-end planning tips presented here may not be appropriate for tax calculated the AMT way.
Taxpayers who are most apt to be subject to the AMT are individuals who realize a large amount of long-term capital gains, pay high state or local taxes, exercise incentive stock options without selling the stock the same year, claim a large number of personal exemptions, or use a mortgage or home equity line of credit for purposes unrelated to a home.
Bunch medical and dental expenses.
If you itemize deductions and have un-reimbursed medical and dental expenses for the year, tally them up. If the total exceeds 10% of your adjusted gross income (AGI), the excess is deductible. For example, if your AGI is $100,000, you can generally deduct the portion of your un-reimbursed expenses that exceeds $10,000. If you are just under the 10% threshold for the year, consider paying some 2018 expenses this year so that you can clear the threshold and can deduct the excess amount. For a list of deductible medical and dental expenses, see IRS publication 502.
This list is intended to give you ideas to get you planning for your 2017 tax returns. To discuss your situation in detail and look for other avenues to keep more of what you earn please contact us at 802.878.1963 (Williston, VT) or 802.775.7132 (Rutland, VT).