Getting a Jumpstart on Your 2016 Income Taxes
As we’re quickly approaching the end of the year, amidst all the holiday parties and corralling the kids on their winter recesses it can be easy to forget that tax filing season is going to upon us very soon. Before getting ready to ring in the New Year, there’s a few things you may want to do at the 11th hour when it comes to your 2016 income taxes before a new tax year begins.
Start gathering your records and make sure they’re in a place where you can easily find them.
While you’re not going to have vital documents like your W-2 and 1099 forms just yet, now is still a good time to start gathering up other records you’ll need to file your taxes. This would encompass income and expenses if you have self-employment income, charity receipts, records for tax-advantaged accounts like education savings plans and IRAs, and other items that could affect the outcome of your tax return.
You should also make a list of tax documents that you are expecting, such as 1099 forms from financial institutions and side jobs, so you know to contact the issuer if it takes too long to receive these forms. You also want to keep your paper and electronic records in a place where you can easily find them so that you can keep your tax preparation appointment as quick and stress-free as possible.
Make those last-minute donations to charities you support.
Even if you’re making that donation on your credit card where you won’t pay the bill until January, it still counts for 2016. If one of your New Year’s resolutions was to do some cleaning around the house, you’ll want to do it before the clock strikes midnight on December 31st so you can account for your donations of clothing and household goods.
Fast-track your retirement savings before the year is over.
If you want to get a quick and easy tax write-off, you should make contributions to your retirement plan right away before the year is over. If you are covered by an employer-sponsored plan such as a 401(k), you should try to contribute as much as you can to qualify for an employer match. You will not only be able to defer more of your income, but an employer match is the closest to absolutely free money most people could possibly get.
If you are not covered by a plan at work, you can also open an IRA at the last minute. If you are moderate or low income, you can even get a Saver’s Credit in addition to the deduction for your IRA contribution. However, you have until April 15, 2017 to make your IRA contributions count for the 2016 tax year but it’s prudent to get this done before the year ends. If you have an employer-sponsored plan, you must contribute before December 31st to have it count for 2016.
Contribute to other tax-advantaged accounts if you haven’t reached the limits yet.
tax-advantaged accounts such as health savings accounts and education savings plans if you haven’t reached the limits on these accounts yet.
Go over your portfolio and see if you should sell off any assets to make the sales count for 2016 to take advantage of capital gain and loss netting.
Do you have a stock that’s been consistently losing value over time and you just want to get a write-off? This could be the time to sell poorly-performing investments before ringing in 2017 to take advantage of capital losses. However, because you are limited to $3,000 on capital loss deductions, you should also take a look at your long-term capital gains for investments held longer than a year. A huge gain can help absorb your massive long-term capital loss so you can fully maximize the value of that loss. Conversely, if your portfolio is sparse and you want to start thinking ahead of 2017, capital losses in excess of $3,000 will carry over to the next year so you can also save some of your write-off for ahead of time.
If you think some of your assets will increase in value in 2017 to absorb the carryover loss, this is something to look at before it’s time to switch the year on all the calendars.
Rue & Associates is happy to answer any questions and concerns you have about your income taxes, including last-minute tax tips to make sure you reduce your tax liability for 2016 as much as possible. Please give us a call today to speak to one of our friendly and professional tax law experts.