16 Year-End Money Tips for 2016

The 2016 year-end money tips post is a complicated one, because of major tax changes that are expected to occur next year under the Trump Administration. While there is no single plan to analyze yet, both candidate Trump’s plan and Speaker of the House Paul Ryan’s plan, would cut ordinary income tax brackets, increase standard deduction amounts and repeal and/or limit personal exemptions and itemized deductions. The coming changes mean that you may need to rethink what you have done in the past to prepare for the year-end and adjust your actions to reflect what is likely to be a new tax environment.

1. Accelerate Itemized Deductions: The main theme for 2016 year-end planning for the nearly one-third of taxpayers who itemize their deductions is clear: you should determine whether it makes sense to pre-fund deductions, like state and local taxes, mortgage interest, and charitable donations this year, because they are likely to be less valuable or potentially go away, next year.
2. Bunch itemized deductions. Many expenses can be deducted only if they exceed a certain percentage of your adjusted gross income (AGI). So try to bunch legal advice and tax planning, travel and vehicle costs into one year, so you exceed these the 2 percent floor.
3. Give Bigger Charitable Donations: You may want to give next year’s or future years charitable gifts in 2016, in order to take advantage of the changes on the horizon.
4. Use Highly Appreciated Securities for Charitable Contributions: If you itemize deductions, you'll write off the current market value (not just what you paid for them) and escape taxes on the accumulated gains.
5. State and local taxes: If you live in a high tax state or municipality and itemize deductions, you can deduct property taxes paid. While many high-income earners lose a chunk of this write-off due to the alternative minimum tax, many others may benefit from paying whatever is due for 2016, before year-end.
6. Don’t Pre-Pay Mortgages: Before you start making your 2017 mortgage payments now, you should know that the IRS does not allow you to take deductions for prepaid mortgage interest expenses. That said; if you are a high earner and are thinking about a re-fi or new home loan, just know that the value of the mortgage interest deduction is likely to shrink in the future.
7. Wait to sell winners in taxable accounts: The usual advice is sell winners, but considering that capital gains tax rates are likely to drop in the future, especially for high earners, you may want to hold off. But if you expect your income to be much higher next year, you may want to realize capital gains today at the lower rate. Your taxable income includes the gain, so factor that in when you make your decision.
8. Sell losers in taxable accounts. If you have investment losses in a taxable account, you can sell them to offset gains that you have taken previously in the year. If you have more losses than gains, you can deduct up to $3,000 against ordinary income; and if you have more than $3,000, you can carry over that amount to future years. If you’re going to sell something and replace it within thirty days, the new asset can’t be “substantially identical,” which is known as the wash sale Avoid it by waiting 31 days and repurchase what you sold, or replace it with something that’s close, but not the same as the one you sold.
9. Use your gift tax exclusion. You can give up to $14,000 to as many people as you wish in 2016, free of gift or estate tax. If you combine gifts with a spouse, you can give up to $28,000 per beneficiary, per year.
10. Fully fund your college savings 529 plan. Money saved in these programs grows tax-free and withdrawals used to pay for college sidestep taxes, too. You can invest up to $14,000 in 2016 without incurring a federal gift tax and many states offer state tax deductions for the contributions.
11. Pay someone's education or medical bills.You can make unlimited payments directly to medical providers or educational institutions on behalf of others without incurring a taxable gift or dipping into your lifetime gift-tax exemption.
12. Fully fund employer-sponsored retirement plan contributions. The deadline for funding 401 (k), 403 (b) or 457 plans is December 31. If you are not maxed out yet, you may be able to bump up your contribution limit on your last couple of paychecks. The limit is $18,000, plus an additional $6,000, if you are over 50.
13. Consider converting Traditional IRA into a Roth IRA. A conversion requires that you pay the tax due on your retirement assets now instead of in the future. Whether or not a conversion makes sense for you depends on a number of factors, the most important of which is whether or not you can pay the tax due with non-retirement funds.
14. Take Required Minimum Distributions (RMD). Uncle Sam requires that you withdraw money from retirement accounts after you turn 70 ½. (IRS rules are complicated, so please consult IRS.gov for more specifics.) RMD withdrawals must occur by December 31^st and failure to do so results in a whopping 50 percent penalty on the amount you should have withdrawn. If you have multiple individual retirement accounts, you only need to take one RMD from all, based on your age and the total value of the accounts. BUT, if you also have a 401K or 403B, you need to take the RMD from each account individually.
15. Consider a Qualified Charitable Distribution (QCD). Last year, Congress finally made Qualified Charitable Distributions a permanent part of the tax code. This technique allows you to sidestep the taxation on your RMD by making a gift up to $100,000 directly from your IRA to a charity without having to include the distribution in your taxable income. If you use it, you swap having to claim the income for making a charitable deduction.
16. Open a small business retirement account. If you open a qualified retirement account by December 31, you have until the day you file your taxes next year, including extensions, to make this year's contribution. One plan to consider is the solo or one-participant 401(k) plan, which allows total contributions, not counting catch-up contributions for those age 50 and over, of up to $53,000 for 2016.

8 Year-End Tax Planning Tips 2014

Before you shutdown for the holidays, remember that just a few hours spent reviewing your financial life, may help boost your bottom line – and put a dent in your holiday shopping bills! Here are eight ideas to consider, which could minimize taxes before we ring in 2015. 1. Sell winners in taxable accounts. In 2014 married tax filers with taxable income up to $73,800 (singles up to $36,900) still have a zero percent tax rate on long-term capital gains and qualified dividends. If you are at the zero percent capital gains rate now, but expect your income to be higher later, you may want to realize capital gains today at the lower rate. Your taxable income includes the gain, so make sure that you factor that in when you make your decision.

2. Sell losers. If you have investment losses in a taxable account, now is the time to use those losers to your advantage. You can sell losing positions to offset gains that you have taken previously in the year, to minimize your tax hit. If you have more losses than gains, you can deduct up to $3,000 of losses against ordinary income. This is particularly useful, since your ordinary income tax rate is higher than your capital gains tax rate. If you have more than $3,000 of losses, you can carry over that amount to future years.

3. Avoid getting soaked by a wash sale. If you are starting to clean up your non-retirement accounts to take losses, don't get soaked by the "Wash Sale" rule. The IRS won't let you deduct a loss if you buy a "substantially identical" investment within 30 days, what's known as a wash sale. To avoid the wash sale, wait 31 days and repurchase the stock or fund you sold, or replace the security with something that is close, but not the same as the one you sold...hopefully something cheaper, like an index fund.

4. Bunch itemized deductions. Many expenses can be deducted only if they exceed a certain percentage of your adjusted gross income (AGI). Bunching itemized deductible expenses into one year can help you exceed these the 2 percent AGI floor for miscellaneous expenses. To exceed bunch professional fees like legal advice and tax planning, and unreimbursed business expenses such as travel and vehicle costs.

5. Mail your checks for deductible purchases. Procrastinator alert! If you're the type of person who waits until the last minute for everything, take note: To qualify for write-offs of charitable contributions and business expenses, your payments must be postmarked by midnight December 31. The IRS says just writing "December 31" on the check does not automatically qualify you for a deduction; and pledges aren't deductible until paid. Donations made with a credit card are deductible as of the date the account is charged.

6. Fully fund your college savings 529 plan. If you find yourself with a little extra year-end cash, or grandma asks what she can do for your kids, consider a 529 plan. Money saved in these programs grows tax-free and withdrawals used to pay for college sidestep taxes, too. You can invest up to $14,000 in 2014 without incurring a federal gift tax and many states offer state tax deductions for the contributions.

7. Give appreciated stock or fund shares to charity. Get in the holiday spirit, with the help of Uncle Sam. One way to lower your tax bill in April is to donate appreciated securities, like stocks, bonds or mutual funds, to a charity. If you itemize deductions, you'll write off the current market value (not just what you paid for them) and escape taxes on the accumulated gains. The low cost basis does not impact the receiving charity, as long as it is a tax-exempt organization.

8. Use your gift tax exclusion. You can give up to $14,000 to as many people as you wish in 2014, free of gift or estate tax. If you combine gifts with a spouse, you can give up to $28,000 per beneficiary, per year.

Year-End Planning: Investments

Before you shut down for the holidays, remember that just a few hours spent reviewing your financial life may help boost your bottom line - and put a dent in your holiday shopping bills! Here are six ideas to consider for your investment accounts before we ring in the new year. 1. Sell winners in taxable accounts. Although capital gains rates increased for individuals earning $400,000 and joint filers who earn more than $450,000, in 2013 married tax filers with taxable income up to $72,500 (singles up to$36,250) still have a zero percent tax rate on long-term capital gains and qualified dividends. If you are at the zero percent capital gains rate now, but expect your income to be higher later, you may want to realize capital gains today at the lower rate. Your taxable income includes the gain, so make sure that you factor that in when you make your decision.

2. Sell losers. If you have investment losses in a taxable account, now is the time to use those losers to your advantage. You can sell losing positions to offset gains that you have taken previously in the year to minimize your tax hit. If you have more losses than gains, you can deduct up to $3,000 of losses against ordinary income. This is particularly useful, since your ordinary income tax rate is higher than your capital gains tax rate. A $3,000 loss against ordinary income could be worth anywhere from $300 to $588 in reduced taxes. If you have more than $3,000 of losses, you can carry over that amount to future years.

3. Avoid getting soaked by a wash sale. If you are starting to clean up your non-retirement accounts to take losses, don't get soaked by the "wash sale" rule. The IRS won't let you deduct a loss if you buy a "substantially identical" investment within 30 days, which is known as a wash sale. To avoid the wash sale, wait 31 days and repurchase the stock or fund you sold, or replace the security with something that is close, but not the same as the one you sold- hopefully something cheaper, like an index fund.

4. Minimize your dividend-paying positions. Dividend income tax rates jumped this year for high wage earners. The net investment income tax levies an additional 3.8 percent on net capital gains, dividends, interest, rents and royalties. If you forgot to make the change last year, or think that your tax bracket could rise next year, consider shifting dividend-paying stocks and mutual funds into retirement accounts, where the increase will not be in effect.

5. Give appreciated stock or fund shares to charity: Get in the holiday spirit, with the help of Uncle Sam. One way to lower your tax bill in April is to donate appreciated securities, like stocks, bonds or mutual funds, to a charity. If you itemize deductions, you'll write off the current market value (not just what you paid for them) and escape taxes on the accumulated gains. The low cost basis does not impact the receiving charity, as long as it is a tax-exempt organization.

One note: For 2013, the overall limit on itemized deductions was reinstated for certain taxpayers. The limitation (known as Pease limit) is applied to single filers who earn more than $250,000 and joint filers who earn more than$300,000. Be sure to factor in the change when accounting for the value of the donation.

6. Rebalance your investment accounts: The suggestions above should be part of a larger analysis of your investment accounts. The soaring stock market has probably thrown your allocation out of whack, so it's time to rebalance and get back on track. One of the best aspects of rebalancing is that it can force you to sell while the asset value is high and buy when other asset values are depressed. Compare that with the usual "buy high-sell low" cycle that can ensnare emotional investors!