The 2016 tax filing deadline is behind us. Now, as we open up our 2016 returns, is the perfect time to get ahead for 2017. In this article, we explore some simple ways to do so.
Tip #1 – Change Your Withholding Allowances
If you had a significant refund or balance due in 2016 and you expect your income and deductions to remain the same for 2017, you should examine your withholding allowances and potentially complete a new federal W-4 Employee’s Withholding Allowance Certification (Each state has their own form.).
If you received a large refund, you can increase the withholding allowance. Doing so will reduce the amount of tax withheld, allowing you to keep more of what you earn throughout the year.
Conversely, if you want to avoid a large balance and the associated penalty, you can decrease the number of withholding allowances on your current election.
Tip #2 – Share Capital Loss Information
It is useful to share unused capital loss information—found on Schedule D— with your investment advisor. Page 1 will break out a number of losses between short-term and long-term investments. Page 2 provides the total capital losses for the year and the amount used against your 2016 income.
The balance is available as an offset to any gains you may realize in 2017. So if you have a “winner,” let your advisor know the amount of loss you have in order to shelter the gain.
Tip #3 – Increasing Retirement Plan Contributions
In you are turning 50 in 2017 (Happy Birthday!), you can increase your retirement plan contributions as follows:
The maximum 401-k type plan contribution for anyone under age 50 remains at $18,000. At 50, you can bump your contribution up to $24,000.
If you have a simple plan, you can increase your contribution to $15,500.If you have an IRA, the maximum contribution is $6,500.
Tip #4 – Minimum Distribution Milestone
If you are turning 70 ½ this year and are retired, you can look at possibly taking your first Required Minimum Distribution (RMD) by the end of the 2017 year. Otherwise, you will have two distributions to take in 2018.
Tip #5 – Tax Deductions
For 2017, the standard deduction for married filing jointly is $12,700 and $6,350 for single or married filing separately—unless proposed increases are enacted. Schedule A is where medical expenses, state and local income tax, home-related deductions, charitable contributions, and certain miscellaneous items are reported.
It is important to look at whether your allowable, itemized deductions are greater than the standard deduction. If so, then you benefit from tracking individual deductions. If not, you do not need to continue to track in 2017.
If you have any questions, please contact me for assistance.
Susan A. Moussi, CPA, CFP®, CDFA SMD Tax & Divorce Financial Planning Consultants, Inc. Phone: 614.429.4172 firstname.lastname@example.org