Wednesday, December 7, 2016

End of the Year Tips to Minimize Your 2016 Taxes

As many dentists know, the upcoming year end is always the time to consider minimizing your taxes. Here are a few tips from the CPAs at the Dental CPAs.

  1. Maximize your contributions to retirement plans. Contribute more to your 401k by the end of the year to reduce your taxable income and your tax bills.

  1. Consider using a credit card to prepay expenses that can generate deductions for this year such as supplies. 

  2. If possible, defer your income. Take capital gains in 2017 instead of 2016.  This move only will be beneficial if you think you will be in the same or a lower tax bracket next year.

  1. Consider bonus depreciation, it’s a way to write off the cost of an asset purchased for business use. The Section 179 2016 deduction limit is $500,000, which can be used on new and used equipment and off-the-shelf software. To qualify for the deduction, the equipment must be financed or purchased and put into service by the end of the day on December 31, 2016.
Remember to keep records of the equipment or software purchases that you plan to claim for the Section 179 deduction, including where it was purchased, the date it was acquired, and the date it was placed into service.

  1. Give away your money. If you were planning to give a lot of money to someone, utilize your annual gift exclusion of $14,000. This is not an income tax savings strategy but rather is an estate reduction strategy.  If you are concerned about having a large taxable estate, don’t miss the opportunity to utilize your annual gift exclusion each year.

  2. Finalize your records. If you plan to deduct mileage on your personal car, make sure your mileage logs are complete.  Review how long you need to keep your paperwork before throwing out any records.
  3. Sell investments such as stocks and mutual funds to realize losses. Then use those losses to offset any taxable gains you have realized during the year. Losses offset gains dollar for dollar.

  1. If possible, contribute the maximum to your retirement account ($18,000 for 2016, $24,000 if you are age 50 or over). These accounts can grow to a substantial sum because they compound over time free of taxes.

  1. Fund your IRA.  If you cannot make a deductible IRA contribution, consider whether you should make a non-deductible IRA contribution as it could become a possible future Roth IRA conversion for retirement or estate planning purposes.  You have until APRIL 15, 2017 to make IRA contributions for 2016 but the sooner you get the money into the account, the sooner it has the potential to start to grow tax-deferred.

  1. Do an alternative minimum tax (AMT) analysis. If there’s a chance that you will be subject to AMT, analyze your deductions to see if you are better off waiting to make some of the above moves. Once AMT comes into play, some of the end of the year tax moves will have no tax benefit.  Deductions such as state income taxes and real estate taxes are always an AMT deductibility issue.