Tax Savings Ideas are Still Available

As the end of the year approaches, there is still time to make moves to manage your tax liability. Here are some ideas to consider before the glitter ball drops in Times Square.

Icon Maximize your retirement plan contributions. This includes IRAs and 401(k) plans at work. Given the contribution limits in 2016 are not increasing, now is the time to maximize the contribution potential for this year.
Icon Estimate your current and next year taxable income. With this estimate you can determine which year receives the greatest benefit from a reduction in income. By understanding what the tax rate will be for your next dollar earned, you can understand the tax benefit of reducing income for this year versus next year.
Icon Make charitable contributions. Consider which tax year will benefit most from your charitable giving of cash and non-cash items. Shift your giving into the year that will provide you the most benefit. Remember to track your charitable mileage. It is deductible as well.
Icon Take capital losses. Each year you can deduct up to $3,000 in capital losses in excess of capital gains. Start to identify which investments may make sense to sell to take advantage of this. If planned correctly, these losses can offset ordinary income.
Icon Consider donating appreciated stock. This strategy gives you a charitable deduction for the market value of the stock while not having to pay capital gains tax on the charitable gift. If you provide an annual pledge sheet to your church, this can be a great way to maximize your gift while giving needed funds to your church at the beginning of the year.
Icon Standard or itemized deductions. The standard deduction for 2015 and 2016 is $12,600 for joint filers and $6,300 for single filers. If your itemized deductions are close to these amounts, consider shifting the deductions into next year. You can then maximize the benefit of itemizing into one tax year.
Icon Retirement plan distributions. If you are age 70½ or older, don’t forget to take your required minimum distributions for the year. If you are retired, but younger than 70½, consider taking tax efficient distributions from your retirement accounts. By paying some tax now, you may avoid paying higher taxes later when you have to follow the minimum distribution rules after reaching 70½ years old.
Icon Consider pending tax legislation. There may be late breaking tax legislation once again. Should this happen, please be prepared to move quickly to take advantage of any tax law extensions. Save receipts if you are a teacher. Consider charitable deductions from your retirement plan if you are a senior. Keep receipts of large purchases in case sales tax is added as an itemized deduction in lieu of taking a state income tax deduction.

As always, should you have any questions or concerns regarding your situation please feel free to call.

Want Federal Money for College?

FAFSA Student Aid
Prepare now for your FAFSA filing

The Free Application for Federal Student Aid (FAFSA) is often the starting point to help families finance the ever challenging cost of a student’s college education. The application is available starting January 1st. The earlier you file your application, the earlier you will receive aid packages from most participating schools. The application is used to receive grants (free money!), federal loans, and work study awards. Here are some hints to make sure the application process works in your favor.

 Mortarboard Bullet Point Create your signature PINs now. Both the student and parent will need to set up an electronic signature within the FAFSA system. You do not have to wait until January to set these up, so do it now. You cannot submit the FAFSA form without this.
Mortarboard Bullet Point File the FAFSA early! As soon as possible after January 1st, fill out and submit your FAFSA. You will start to see reminders in the press in late December, but November is a great time to estimate your year-end tax obligation. Filing early maximizes your chances of receiving aid. It also minimizes your chances of missing an unknown application deadline.
 Mortarboard Bullet Point Start organizing your tax records. You can fill out and submit the FAFSA form before you finalize your tax return. If you choose this route, you will estimate your tax figures for the FAFSA and then go back later and update your FAFSA with actual numbers. Start organizing your tax records now, so you are in a good position to estimate your tax return.
Mortarboard Bullet Point Let your advisor know. If you have a child ready to attend college, stay in touch with your financial advisor. Managing your assets to present a good financial picture starts before your student’s junior year in high school.
Mortarboard Bullet Point Collect needed information. To fill out a FAFSA you will need the following;

Arrow Student and parent Social Security Numbers
Arrow Drivers license
Arrow Federal tax information for the student and parent (actual or estimated) for current year and actual information from the prior year
Arrow Record of any untaxed income (excluding retirement account balances)
Arrow Information for balances of the following

  • Cash, savings and checking accounts
  • Investment asset balances
  • Other assets
Arrow FAFSA PIN
Mortarboard Bullet Point Involve your student. The FAFSA is a student application for assitance. Use this application process to help your student feel ownership of their educational journey.

Every January, the www.fafsa.gov web site is heavy with activity as students start submitting their FAFSA forms. Please ask for assistance if you need help with any part of the FAFSA submission. The form can be a daunting task for the uninitiated, but by proper preparation you can get your form done in quick order.

2016 Retirement Contribution & Social Security Limits

As the end of the year rolls around, if you have not already done so, now is the time to plan for contributions into your retirement accounts in 2016.

Retirement Contribution Limits

Retirement Program 2016 2015 Change Age 50 or over catch up
IRA: Traditional $5,500 $5,500 none add: $1,000
IRA: Roth $5,500 $5,500 none add: $1,000
IRA: SIMPLE $12,500 $12,500 none add: $3,000
401(k), 403(b), 457 plans $18,000 $18,000 none add: $6,000

Social Security

Item 2016 2015 Change Comment
Wages Subject to Social Security $118,500 $118,500 none Annual Social Security employee tax: $7,347
Average Estimated Monthly Retirement Benefit

Don’t forget to account for any matching programs offered by your employer as you determine your various funding levels for next year.