10 Really Good Year-End Tax Tips

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By Maryalene LaPonsie, Contributor

With the end of the year looming, the window is quickly closing for taxpayers who want to minimize the taxes they will pay next spring.

What’s more, for those trying to make year-end adjustments to their income and deductions, a tax reform bill being discussed in the District of Columbia has created uncertainty. Although it’s tempting to take action based on expected changes to the law, some finance experts urge caution. “Until the law becomes formal, we have to be very careful,” says Kristin Bulat, senior vice president of strategic resources for insurance and consulting firm NFP.

Taxpayers shouldn’t make rash decisions based on a bill which may or may not become law. However, there are some smart money moves that can help hedge against potential changes.

 

Here are 10 tax tips to reduce the amount of federal income tax you’ll pay for 2017.

1. Make 401(k) and HSA contributions. People can make tax deductible contributions to traditional IRAs up to April 17 of next year. However, the door closes on Dec. 31 for 401(k) and health savings account contributions.

 

Taxpayers with a qualified high-deductible family health insurance plan can deduct up to $6,750 in contributions to a health savings account. Those age 55 or older are eligible for an additional $1,000 catch-up contribution.

Tax deductible contributions to a traditional 401(k) are capped at $18,000 for 2017. Workers age 50 and older can make an additional $6,000 in catch-up contributions.

 

[See: How to Pay Less Tax on Retirement Account Withdrawals.]

 

2. Avoid taxes on a RMD with a charitable donation. Seniors who have a traditional 401(k) or IRA account must take a required minimum distribution each year once they reach age 70 1/2. Those who don’t need this money for living expenses may want to consider having it sent directly to a charity as a qualified charitable distribution. “If you take it out as a qualified charitable distribution, it doesn’t increase your adjusted gross income,” says Mike Piershale, president of Piershale Financial Group in Crystal Lake, Illinois. “It can also hold down the amount of Social Security that is taxed.”

 

3. Hold off on mutual fund purchases. People should be wary of buying mutual funds at this time of year if they will be held in a taxable account. You could get hit with a tax bill for year-end dividends even if you just purchased shares. “It’s a big surprise,” says Emilio Escandon, managing principal of the Northeast region for accounting firm MBAF. To avoid paying those additional taxes, Escandon recommends consulting with a broker before making a purchase to find out when distributions are made.

4. Convert money from a traditional to a Roth IRA. Withdrawals from traditional IRAs are taxed in retirement, but distributions from Roth IRAs are tax-free. Money can be converted from a traditional to a Roth account prior to retirement, but taxes must be paid on the converted amount.

Tax experts say people should be careful that the amount they convert doesn’t bump them into the next tax bracket. The one exception might be those who expect to pay the alternative minimum tax for 2017. The top AMT tax bracket is 28 percent, but it is targeted for elimination in the D.C. tax reform bill. If that happens, people paying the AMT this year could find themselves in a higher tax bracket next year. As a result, some people may be better off converting a greater amount in 2017. “If you were considering [a Roth conversion] and you’re in the AMT, do it this year,” Escandon says.

 

5. Harvest your capital losses. If you own stocks that have lost money, you can sell them and deduct up to $3,000 on your federal taxes. Just be careful not to violate the wash sale rule, which would disallow the deduction. This rule states you cannot purchase the same or a substantially similar stock within 30 days before or after the sale.

 

6. Pick up capital gains if you’re in a low tax bracket. The end of the year is also a good time for some people to sell stocks that have appreciated significantly in value. “If you are in the 10 or 15 percent bracket, the long-term gains [tax rate] is zero,” Piershale says. “Sell them in the 15 percent [tax bracket] and buy the stock back the next day to reset the basis.” By resetting the basis, taxpayers can minimize the amount of tax they could pay on future gains.

 

7. Use your flexible spending account balance. Workers who have flexible spending accounts need to use up their balances soon. These accounts have “use it or lose it” provisions in which money reverts back to an employer if not spent. While some companies provide a grace period for purchases made in the new year, others end reimbursements at the close of the calendar year. “So it’s time to get a new pair of glasses or something like that,” Bulat says.

8. Bunch your itemized deductions. Taxpayers who itemize deductions for 2017 may not need to in 2018. “They’re talking about almost doubling the standard deduction next year,” Piershale says of the tax reform discussion. “Because of that, we’ve been talking [with clients] about maximizing itemized deductions this year.” People may want to prepay their January mortgage payment in December, make additional charitable donations or pull the trigger on big purchases before the end of the year. “Buy the car this year if you are deducting the sales tax,” Piershale says.

[Read: Year-End Retirement Planning Deadlines for 2017.]

 

9. Prepay your state income taxes. Another major change that is brewing in D.C. concerns state income taxes. “Both the House and the Senate bills eliminate the state income tax deduction,” Escandon says. Should that happen, taxpayers won’t be able to deduct any payments made in 2018, even if they are for the 2017 tax year. Therefore, Escandon recommends that anyone who thinks they will owe state income tax in April to send in that money this December.

 

10. Consider whether to defer your bonus. Some workers might want to consider asking their bosses to wait until after the new year to send bonus checks. “Tax rates may be dropping for some, thanks to tax reform,” Escandon says. If that happens, people may be better off delaying income until 2018 when it could be taxed at a lower rate.

There’s only a month to go until we ring in 2018. If you want to minimize your 2017 federal income taxes, the time to act is now.

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8 Pretty Good Things For Seniors To Remember at Tax Time

Tax day, which is April 18th in 2017, is approaching and it is time to begin crossing T’s and dotting I’s in preparation for paying taxes. As tax time draws near, you want to make sure you file all the proper forms and take all deductions you’re entitled to. Following are some things to keep in mind as you prepare your tax form.

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  1. Gifts. Did you give away any money this year? The gift tax can be very confusing. If you gave away more than $14,000 in 2016, you will have to file a Form 709, the gift tax return. This does not necessarily mean you will owe taxes on the money, however.
  2. Medical Expenses. Many types of medical expenses are tax deductible, from hospital stays to hearing aids. To claim the deduction, your medical expenses have to be more than 10 percent of your adjusted gross income.  (For taxpayers 65 and older, this threshold will be 7.5 percent through 2016.) This includes all out-of-pocket costs for prescriptions (including deductibles and co-pays) and Medicare Part B and Part C and Part D premiums. (Medicare Part B premiums are usually deducted out of your Social Security benefits, so be sure to check your 1099 for the amount.) You can only deduct medical expenses you paid during the year, regardless of when the services were provided, and medical expenses are not deductible if they are reimbursable by insurance.
  3. Parental Deduction. If you are caring for your mother or father, you may be able to claim your parent as a dependent on your income taxes. This would allow you to get an exemption $4,050 (in 2016) for him or her.
  4. Long-Term Care Insurance Premiums. Premiums for “qualified” long-term care policies are treated as an unreimbursed medical expense. Long-term care insurance premiums are deductible for the taxpayer, his or her spouse and other dependents.
  5. Social Security Benefits. Although Social Security benefits are generally not taxable, people with substantial income in addition to their Social Security may pay taxes on their benefits. If you file a federal tax return as an individual and your “combined income,” including one half of your Social Security benefits and nontaxable interest income is between $25,000 and $34,000, 50 percent of your Social Security benefits will be considered taxable. If your combined income is above $34,000, 85 percent of your Social Security benefits is subject to income tax.
  6. Home Sale Exclusion. Married couples can exclude from income up to $500,000 in profit on the sale of a home ($250,000 for single individuals). If a surviving spouse sells the home, he or she can still claim the exclusion as long as the house was sold no more than two years after the spouse’s death.
  7. Elderly or Disabled Tax Credit. Some low-income elderly or disabled individuals are entitled to a special tax credit. To be eligible, you must meet income limits. For more information, click here.
  8. Tax Refunds. Getting a federal tax refund should not affect your Medicaid or Social Security benefits. For a year after receiving a tax refund from the federal government, the refund will not be considered income or resources for SSI or Medicaid purposes. You can also transfer the refund within a year without incurring a penalty.

The IRS’s Tax Counseling for the Elderly (TCE) Program offers free tax help to taxpayers who are 60 and older. For more information, click here. The IRS also publishes a Tax Guide For Seniors.

More Free Helpful Legal Guides for Seniors, click here.

It’s Official: Estate Exclusion to Rise to $5.45M in 2016

The IRS has announced that the basic estate tax exclusion amount for the estates of decedents dying during calendar year 2016 will be $5.45 million, up from $5.43 million for calendar year 2015.  This figure is in line with earlier projections.

Also, if the executor chooses to use the special use valuation method for qualified real property, the aggregate decrease in the value of the property resulting from the choice cannot exceed $1,110,000, up from $1,100,000 for 2015.

The increase in the estate tax exclusion means that the lifetime tax exclusion for gifts will also rise to $5.45 million, as will the generation-skipping transfer tax exemption. The annual gift tax exclusion will remain at $14,000 for 2016.

For details on many of these and other inflation adjustments to tax benefits, go to:https://www.irs.gov/pub/irs-drop/rp-15-53.pdf

[More on Estate Planning]

[Ten Reasons to Create an Estate Plan Now]

Regards,

Brian

 

Life Events That May Have Tax Consequences for Seniors and Retirees

Many significant life events often come with a related tax consequence. Here are some issues that may be facing seniors and retirees with links to more information on their tax impact.

elder law nycAs listed by the IRS

Planning for Retirement?

Mutual Fund Distributions

Job Loss or Starting a New Career or Job

Persons with Disabilities

Decedents

  • Publication 559, Survivors, Executors and Administrators
  • Form 56, Notice Concerning Fiduciary Relationship
  • Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer
  • Form 4810, Request For Prompt Assessment Under Internal Revenue Code Section 6501(d)

Divorce or Separations

Marriage

Disaster

Moving?

Did You Receive a Notice?

Filing or Paying Late – Information Taxpayers Should Know!

Many people today need more time to prepare their federal tax return. They may want to consider an  for time to file. However, extension of time to file a return does not grant any extension of time to pay a tax liability.

Additional Assistance

News Releases and Tax Tips

Regards,

Brian

The Law Offices of Brian A. Raphan, P.C.

www.RaphanLaw.com

Tips for Seniors in Preparing their Taxes

As April 15th is around the corner, the IRS has these tips for seniors preparing their taxes:

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Current research indicates that individuals are likely to make errors when preparing their tax returns. The following tax tips were developed to help you avoid some of the common errors dealing with the standard deduction for seniors, the taxable amount of Social Security benefits, and the Credit for the Elderly and Disabled. In addition, you’ll find links below to helpful publications as well as information on how to obtain free tax assistance.

Standard Deduction for Seniors – If you do not itemize your deductions, you can get a higher standard deduction amount if you and/or your spouse are 65 years old or older. You can get an even higher standard deduction amount if either you or your spouse is blind. (See Form 1040 and Form 1040A instructions.)

Taxable Amount of Social Security Benefits -When preparing your return, be especially careful when you calculate the taxable amount of your Social Security. Use the Social Security benefits worksheet found in the instructions for IRS Form 1040 and Form 1040A, and then double-check it before you fill out your tax return. See Publication 915Social Security and Equivalent Railroad Retirement Benefits.


Credit for the Elderly or Disabled – You must file using Form 1040 or Form 1040A to receive the Credit for the Elderly or Disabled. You cannot get the Credit for the Elderly or Disabled if you file using Form 1040EZ. Be sure to apply for the Credit if you qualify; please read below for details.

Who Can Take the Credit: The Credit is based on your age, filing status and income. You may be able to take the Credit if:

Age: You and/or your spouse are either 65 years or older; or under age 65 years old and are permanently and totally disabled.

AND 

Filing Status: Your income on Form 1040 line 38 is less than $17,500, $20,000 (married filing jointly and only one spouse qualifies), $25,000 (married filing jointly and both qualify), or $12,500 (married filing separately and lived apart from your spouse for the entire year).

And, the non-taxable part of your Social Security or other nontaxable pensions, annuities or disability income is less than $5,000 (single, head of household, or qualifying widow/er with diependent child); $5,000 (married filing jointly and only one spouse qualifies); $7,500 (married filing jointly and both qualify); or $3,750 (married filing separately and lived apart from your spouse the entire year).

Calculating the Credit: Use Schedule R (Form 1040 or 1040A), Credit for the Elderly or Disabled, to figure the amount of the credit.  See the instructions for Schedule R (Forms 1040 or 1040A) if you want the IRS to figure this credit for you.

Also see Publications 524 (Credit for the Elderly or Disabled); and 554 (Tax Guide for Seniors). 

Free IRS Tax Return Preparation –  IRS-sponsored volunteer tax assistance programs offer free tax help to seniors and to low- to moderate-income people who cannot prepare their own tax returns.

If you have recently done some Estate Planning, check with us and your accountant to make sure you are filing your returns properly.

FREE ESTATE PLANNING GUIDE

Regards, Brian

The Law Offices of Brian A. Raphan, PC