Year Round Tax Tips
With the end of the year just around the corner, I get quite a few calls from clients and potential clients about what they should do to plan for year end. Tax planning is a year round activity, not something we try to accomplish in the last week of the year, although there are things we can do to mitigate tax before the ball drops in Times Square.
- Start a filing system. If you don’t have a filing system for your tax records, you should start one. It can be as simple as saving receipts in a shoebox, which is better than nothing (not much) but it can cost you quite a bit more for a tax professional to go through and decipher. We recommend a more complex yet effective approach like creating folders or spreadsheets. It’s always a good idea to save tax-related receipts and records. Keeping good records now will save time and help you file a complete and accurate tax return next year.
- Make Charitable Contributions. If you plan to give to charity, consider donating before the year ends. That way you can claim your contribution as an itemized deduction for 2016. This includes donations you charge to a credit card by Dec. 31, even if you don’t pay the bill until 2017. A gift by check also counts for 2016 as long as you mail it in December. Remember that you must give to a qualified charity to claim a tax deduction. Once again, save your receipts. You must have a written record for all donations of money in order to claim a deduction. Special rules apply to several types of property, including clothing or household items, cars and boats.
If you are age 70½ or over, the qualified charitable distribution allows you to make tax-free transfers from your IRAs to charity. You can give up to $100,000 per year from your IRA to an eligible charity, and exclude the amount from gross income. You can use the excluded amount to satisfy any required minimum distributions that you must otherwise receive from your IRAs in 2016. This benefit is available even if you do not itemize deductions. This special provision is set to expire at the end of 2016.
- Contribute to Retirement Accounts. You need to contribute to your 401(k) or similar retirement plan by Dec. 31 to count for 2016. On the other hand, you have until April 15, 2017, to set up a new IRA or add money to an existing IRA and still have it count for 2016.