Tax planning is an important part of personal finance, and everyone likes to save money! These tips from Chris Eichmuller, CPA can help you do just that.
*This post was originally published 12/01/16
The holiday season is upon us. So many people to see, cards to address, and so much food to eat. What a joyous- and hectic- time! One item that could be addressed before all the fun and excitement of last-minute gift wrapping is how can you prepare for, and save on, your individual taxes.
Here are just a few ideas to consider as we near the end of the year.
- Charitable giving: Consider giving to your favorite charity. Some stores are partnered with organizations and offer you the opportunity to donate right at the register. If you choose to do so, save those receipts – they can add up quickly! A cash donation is what most people think of but, you can also donate appreciated stock. Rather than selling that stock and paying tax on the capital gain, consider donating the stock to charity and taking a charitable deduction instead.
- Medical deductions: Keep track of paid doctors’ and hospital bills, but also the cost of your health insurance if you are self employed. If you are 65 or older in 2016, you may want to pay expenses before the end of the year and take advantage of the 7.5% limitation still available this year. The limitation for all individuals will be increased in 2017 to 10% of adjusted gross income. This increase in the limitation may mean little to no benefit in future years.
- Health Savings Account: If you have a high deductible health insurance plan, are you maximizing your pre-tax contribution to your HSA account? This money remains yours even if you do not spend it by the end of the year. This means the money can stay and grow over the years with no penalty.
- College planning: Consider opening a 529 account for your children or grandchildren. If you use Ohio’s preferred plan, you can receive a $2,000 credit per child on your Ohio income tax return. The contributions grow tax free and are not taxed when used for qualified higher education expenses.
- Social Security income: Be careful of earning more income outside of Social Security. This can cause more of your Social Security benefits to be taxable.
- Required Minimum Distribution (RMD): Did you turn 70.5 this year? Make sure to start your withdrawal from your IRA before April 1, 2017. If you are 71 or older, make sure your RMD is taken before the end of 2016.
- Qualified Charitable Distributions (QCD): The law allowing an individual to make charitable donations directly from their IRA, while satisfying the RMD (up to $100,000), has been made permanent. This allows you to satisfy your RMD requirement without counting as taxable income.
- Retirement savings: Are you contributing to your company’s retirement plan? Are you maximizing your deferral? If you are not in a plan, maybe an IRA contribution is available to you. Deferring money today and watching it grow tax-free is a wonderful gift you can give yourself.
- Check your withholding or estimated tax payments: Have you paid in enough to avoid underpayment penalties? Keep track of all estimated tax payments for when it’s time to file your returns. If you need to adjust your withholding, now is the time to do it, hopefully without breaking the bank.
Everyone’s tax situation is different and so everyone’s planning is a little different. Please contact us to discuss what other ideas there may be to fit your needs.