2016 End of Year Tax Planning Ideas


As we approach year-end, it’s time to consider end of the year tax planning.  For this year, the problem is compounded as a result of uncertainty as to what the new year will bring with a change in administration and the likelihood that President-elect Trump and the Republican majorities in the House and Senate will make structural alterations in the Tax Code.  There is certainly a possibility that next year will bring about lower marginal income tax rates and significant changes to the application of exemptions and deductions.

As a result, there may well be advantages to accelerating deductible expenses into 2016 where they may be more effectively used and deferring income to 2017 where it may be taxed at lower marginal rates.

There may also be some value in monitoring adjusted gross income to minimize the possible loss of exemptions, deductions, or credits or the imposition of tax surcharges which may come into play when moving into higher tax brackets.

Remember that a number of individual tax incentives were made into “permanent” provisions by the PATH Act of 2015.  These include:

  • The American Opportunity Tax Credit;
  • The teachers’ $250 classroom expense deduction;
  • The ability to deduct state and local sales tax instead of state income taxes;
  • The exclusion for direct charitable donation of up to $100,000 from an IRA; and,
  • The 100 percent gain exclusion on qualified small-business stock.

This is also the time to think about whether to make additional contributions to an, IRA, 401(k) Plan, 403(b) Plan, Keogh Plan, or other qualified retirement vehicle to take maximum advantage of these provisions.  This may be a particularly valuable way to reduce adjusted gross income as well as garnering the benefit of any employer matching contributions.

Reviewing your investment portfolio to anticipate gains and losses may also be a worthwhile endeavor.  Taxpayers who have enjoyed substantial gains this year may benefit by recognizing losses to reduce capital gains tax exposure.

Now is the time to sit down and do some year end planning.