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Year-End Tax Strategies

Earlier this year, we discussed the importance of making income tax planning a year-round activity. This month, we offer reminders of some strategies that have year-end deadlines as it relates to the 2016 personal income tax year.

  • If you are not on pace to achieve your target level of contributions to your employer-sponsored retirement plan (up to a maximum $18,000 for 401k or similar accounts, plus an additional $6,000 ‘catch up’ for those who are age 50 or older), you may wish to contact your employer’s payroll department to increase your contributions for your remaining paychecks. You may even find it makes sense to contribute your entire paycheck (after other mandatory withholdings) so as to maximize your contribution for the year.
  • For tax year 2016, the standard deduction amounts are $12,600 for married-filing-jointly, $9,300 for head of household, and $6,300 for individual taxpayers and married-filing-separately. If you find that your itemized deductions (which may include, but are not limited to, medical expenses, property taxes, sales taxes, mortgage interest, state income tax payments, and charitable donations) are close to the standard deduction, you may wish to consider pre-paying some 2017 expenses, such as property taxes or charitable donations. By “bunching deductions”, those who typically are eligible only for the standard deductions may be able to itemize deductions every other year, thereby realizing some income tax savings.
  • Certain high-deductible health insurance plans allow for the ability to make tax-deductible contributions to a Health Savings Account (HSA) as an above-the-line deduction, which means one need not itemize deductions in order to benefit. Additionally, contributions made via payroll deduction are not subject to FICA tax. For 2016, eligible persons may contribute as much as $3,350 for individual coverage or $6,750 for family coverage (plus an additional $1,000 for people age 55 or older). Be sure to coordinate this strategy with any contributions your employer may have made on your behalf. Please note that HSA contributions are not permitted if you are enrolled in Medicare Part A or Part B.
  • Depending on your personal tax situation, you may wish to realize capital gains (by selling appreciated securities) or capital losses (by selling securities which are worth less than what you paid for them). Many investors may be able to realize capital gains and pay a tax rate of 0% on their federal return if they are in a 15% or lower marginal income tax bracket. Other investors may benefit from utilizing realized losses to either offset realized gains (no limit) or to offset ordinary income (up to $3,000 per year, with any remainders carrying forward to future years).

Please consult your tax preparer and/or financial advisor to determine if any of the above strategies are appropriate for your overall financial situation.


D_Bower

Douglas J. Bauer, President and CEO of AllSquare Wealth, began his career in the financial services industry in 1975 and is a Certified Financial Planner (CFP®) practitioner. His primary responsibilities include overseeing the direction of the firm, client development, and the servicing of existing client relationships.

As part of assisting clients with their overall wealth management needs, AllSquare Wealth offers estate planning analysis. Any need for legal work is referred out to qualified attorneys.

 

AllSquare Wealth Management is a Federally Registered Investment Advisory Firm.
AllSquare Wealth Management, LLC is a registered investment adviser.

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