Year-end tax moves that could save you money

Daily Local News (West Chester, PA) - - BUSINESS - Nathaniel Sillin Prac­ti­cal Money Skills

The end of the year is ap­proach­ing and be­tween vis­it­ing friends and fam­ily and cel­e­brat­ing the hol­i­days, your taxes may be the last thing on your mind. How­ever, putting off tax prepa­ra­tion un­til later could be a costly mis­take. While tax sea­son doesn’t start un­til mid-Jan­uary, if you want to af­fect the re­turn you file in 2017, you’ll need to make some tax moves be­fore the end of 2016.

You might make this a yearly tra­di­tion — while there may be slight al­ter­ations in the rules or num­bers from one year to the next, many of the fun­da­men­tals be­hind tax-sav­ing ad­vice re­main the same.

Sell los­ing in­vest­ments and off­set cap­i­tal gains or in­come. Do you have prop­erty, stocks or other in­vest­ments that have dropped in value and you’re con­sid­er­ing of­fload­ing? If you sell the in­vest­ments be­fore the end of the year, you can use the lost value to off­set cap­i­tal gains (prof­its from cap­i­tal as­sets). Ex­cess losses can off­set up to $3,000 from or­di­nary tax­able

in­come and be rolled over to fol­low­ing years.

Op­ti­mize your char­i­ta­ble con­tri­bu­tions. Many peo­ple make an an­nual tra­di­tion of do­nat­ing their time and money to sup­port char­i­ta­ble causes. It’s a no­ble thing to do and could come with a tax ben­e­fit. The value of your do­na­tion to a qual­i­fied char­i­ta­ble or­ga­ni­za­tion, mi­nus the value of any­thing you re­ceive in re­turn, could off­set your tax­able in­come.

Char­i­ta­ble con­tri­bu­tions

are de­ductible if you item­ize de­duc­tions. How­ever, most tax­pay­ers find it best to take the stan­dard de­duc­tion — $12,600 for mar­ried peo­ple fil­ing jointly, $9,300 for heads of house­holds and $6,300 for sin­gle or mar­ried peo­ple fil­ing separately for the 2016 tax year. If it’s best for you to take the stan­dard de­duc­tion for 2016 but you think you may item­ize your de­duc­tions next year, con­sider hold­ing off un­til the new year to make the do­na­tions.

De­fer your in­come to next year. You might be able to lower your tax­able in­come for 2016 by de­lay­ing some of your pay un­til

af­ter the New Year. Em­ploy­ees could ask their em­ployer to send a hol­i­day bonus or De­cem­ber’s com­mis­sion in Jan­uary. It could be eas­ier for con­trac­tors and the self-em­ployed to de­fer their in­come since for them, it’s as sim­ple as wait­ing to send an in­voice.

Don’t let FSA sav­ings go to waste. Em­ploy­er­spon­sored Flex­i­ble Spend­ing Ac­counts (FSA) let em­ploy­ees con­trib­ute pre-tax money into their FSA ac­counts, mean­ing you don’t have to pay in­come tax on the money. FSA funds can be spent on qual­i­fied med­i­cal and den­tal pro­ce­dures, such as pre­scrip­tion

med­i­ca­tions, ban­dages or crutches and de­ductible or co­pays.

FSA funds that you don’t use by the end of the year could get for­feited. How­ever, em­ploy­ers can give em­ploy­ees a two-and-a-half month grace pe­riod or al­low em­ploy­ees to roll over up to $500 per year. Check with your em­ployer to see if it of­fers one of these ex­emp­tions, and make a plan to use your re­main­ing FSA funds be­fore they dis­ap­pear.

What can wait un­til af­ter Jan. 1? Pro­cras­ti­na­tors will be pleased to hear that there are tax moves you can make af­ter the start of

the new year.

You have un­til the tax re­turn fil­ing dead­line, April 18 in 2017, to make 2016-tax-year con­tri­bu­tions to a tra­di­tional IRA. The money you add could off­set your in­come, and you’ll be sav­ing for re­tire­ment — a dou­ble win.

The max­i­mum con­tri­bu­tion you can make is $5,500 ($6,500 if you’re 50 or older) for the 2016 tax year. How­ever, the de­ductible amount de­pends on your in­come and el­i­gi­bil­ity for an em­ployer-spon­sored re­tire­ment plan.

Bot­tom line. Don’t wait for the tax sea­son to start to take stock of your sit­u­a­tion

and get your fi­nances in or­der. While there are a few tax moves that can wait, what you do be­tween now and the end of the year could have a sig­nif­i­cant im­pact on your re­turn.

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