End of Year Tax Planning
We're closing out 2016 so let's end it properly with a few tax planning ideas.
Open/contribute to a retirement vehicle such as a Traditional IRA, employer sponsored 401k (if you're a W2 employee), a SEP-IRA or a Individual 401k for those paid as 1099 independent contractors or single shareholder S-Corps or single member LLCs.
The benefit of contributing to a tax deferred retirement vehicle is it lowers your AGI (Adjusted Gross Income), which then lowers your tax liability. A 2nd benefit is a lower income driven repayment amount due to the lower AGI.
Open/contribute to Health Savings Account (HSA) if you have a HDHP (high deductible health plan). As with a tax deferred retirement vehicle, HSA contributions lower your AGI. This result in lower tax liability and a lower income driven repayment amount.
Contribute to a charity if you're able to itemize your deductions. Charitable contributions are tax deductible if you are able to itemize your deduction. Itemized deductions are usually achieved when the taxpayer has mortgage interest and/or high state income tax. Any contributions of $250+ must be documented with a receipt from the charitable organization.
Document your business miles. If you're paid as 1099 independent contractor or a single shareholder S-Corp, document your business miles with a log. An easier option is MileIQ, a phone app that tracks business miles.
Prepay property tax. If you anticipate your 2017 income to be lower than 2016 and you have property tax due in early 2017, pay it in 2016. The 2016 property tax prepayment will be tax deductible in 2016.
Please contact me if you have any questions, particularly if you are considering opening/contributing to a retirement vehicle.