With the end of the year fast approaching and holiday season just a few weeks away, time is running out for investors to “make moves” that could benefit the filing of 2016 taxes next April.
Here are three tips to consider as we head into the end of the year.
All of these provide a win-win for investors of reducing your taxable income and providing a meaningful benefit to your household:
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Maxing Out Your Retirement Plan! – for 2016, the maximum contribution level for a 401(k), 403(b), and 457(b) is $18,000, but that amount jumps to $24,000 if you are age 50 or older. For those retirees who think that your tax rate will be higher once you stop working than it is now, you may want to consider a Roth retirement strategy (if your workplace offers it). A Roth would not offer you the same tax deduction that a traditional IRA or 401(k) contribution would, but any earnings and dividends grow tax free, and withdrawals are also tax free if taken in retirement.1
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Not Covered by a Workplace Retirement Plan? You May Have Options – if you or your spouse are not covered by a workplace plan, you can most likely contribute to a Traditional IRA and take your deduction that way. The maximum contribution is $5,500 per person ($6,500 if you are age 50 or older) or 100% of employment compensation, whichever is less. If you are not covered by a workplace plan but your spouse is, then you can still contribute to a Traditional IRA as long as your annual modified adjusted gross income is less than $184,000.1
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Making Charitable Contributions Before Year-End – the IRS states that you can deduct contributions made in cash or property (like shares of stock from a brokerage account!) before the end of the tax year. Deductions are allows as long as you are giving to a “qualified organizations” and assuming you itemize your deductions. According to the IRS, you may deduct up to 50 percent of your adjusted gross income, but 20 percent and 30 percent limitations apply in some cases. If you want to make a charitable donation but are unsure if it qualifies for deduction, simply visit the IRS website to check (you can also contact a Wealth Manager here at WrapManager and we will help you find out: Qualified Charitable Organizations.)2
Another tactic to consider for the end of the year is gifting. Making gifts to family members or loved ones is generally not tax deductible, but you are allowed to reduce your estate by the size of your gifts, which could help with estate planning. The annual exclusion applies to gifts to each recipient, and the max amount for 2016 is $14,000 per person per donor. 3
Don’t Wait Until the Last Second! Have a Wealth Manager Help You Today
If you think you may have the opportunity to take advantage of some of the above tax benefits, but aren’t exactly sure how to get started, please do not hesitate to give one of our Wealth Managers a call at 1-800-541-7774. We can walk you through each tactic and let you know if it applies to your situation. We can also help you make sure you are on track to make all of your Required Minimum Distributions for the year, if that applies to you. If you would rather communicate over email to get started, just email us at wealth@wrapmanager.com.
Sources:
1. Fidelity: Eight Tax Savings Tips
2. IRS: Charitable Contributions Deductions
The information presented by WrapManager, Inc. is general information only and does not represent tax or legal advice either expressed or implied. You are encouraged to seek professional tax advice for income tax questions and assistance. WrapManager, Inc. does not advise on any income tax requirements or issues.
