Potential Money Saving Ideas
Before you watch the ball drop or set those New Year’s resolutions, let’s talk tax planning. At this time each year, it is always useful to consider year-end personal income tax planning. This year the planning may be even more important. 2016 will be the last Obama tax year. President-elect Trump and the Republican-controlled Congress have promised to make a new tax bill a priority. Rumor has it rates will be lower, but deductions will be fewer. Some expect the amount of the standard deduction to be increased meaning fewer taxpayers will itemize deductions.
The odds are favorable for major tax reform sooner rather than later. Trump wants to reduce rates including reducing the top rate from 39.6% to 33%. Potential lower rates in future years mean you may want to consider the following:
- Defer income into 2017 such as dividends from closely held companies or bonuses.
- Wait on converting a traditional IRA to a Roth IRA. Keep in mind conversions made in 2016 can be undone until October 15 of 2017.
- Put off a property sale until 2017 that will generate a gain.
Deductions have more value when tax rates are higher. In addition, based on the House GOP plan, certain deductions including state and local income taxes and property taxes may be eliminated. If you usually itemize deductions, consider these ideas before the year ends:
- Prepay state income tax and property taxes.
- Accelerate charitable contributions including donating appreciated stocks that have been held long term.
- If a car purchase is in your near future, it may be beneficial to make the purchase in 2016 so that sales tax can be deducted.
Of course there is no guarantee of changes and we all know the government moves incredibly slowly. On the other hand, some quick decisions might save you some money.