Tax day may seem like it’s a long way off, but now is actually a great time to think about ways to trim your tax bill next April. That’s because many actions you can take to lower your 2016 income tax bill must be completed before the calendar flips over to January. Consider these ideas and check with your tax advisor to see what could work for you.
Get health insurance. If you and your family don’t have minimum essential health insurance or qualify for an exemption, you’ll pay a fine (called a shared responsibility payment) on your 2016 federal income taxes. The fee is prorated over 12 months, so the amount you’ll owe depends on how many months you didn’t have coverage. You don’t have to pay the fee if you only went uncovered for one or two months. The annual amount of the fee has gone up this year; for 2016 it’s the greater of these two amounts:
Buy an electric vehicle. You may qualify for a tax credit of $2,500 to $7,500 if you purchase a qualified plug-in electric vehicle. The amount of the credit depends on the battery capacity of the vehicle.
Save for retirement, part 1. Pre-tax contributions to an employer-sponsored retirement plan or tax-deductible contributions to a traditional IRA (if you qualify) lower the amount of income on which you owe tax.* In addition, you won’t pay tax on the earnings in those accounts until you start making withdrawals.** You can contribute to a traditional IRA until April 18, 2017, to take a deduction on your 2016 taxes.
Save for retirement, part 2. The saver’s credit helps low-to-moderate income workers save for retirement. It helps offset part of the first $2,000 you save for your retirement in an IRA, 401(k) plan or similar workplace plan. The maximum credit is $1,000 for individuals, or $2,000 for married couples. The credit can increase your tax refund or reduce the tax you owe. Contributions to an employer’s plan must be made by Dec. 31, 2016, to qualify for the credit, but you have until April 18, 2017, to contribute to an IRA.
Make a charitable contribution. You can take a deduction for donations of cash or property you make to qualified charities. For contributions of $250 or more, you must have documentation detailing your gift. If your total deduction for all noncash donations for the year is over $500, you must complete IRS Form 8283, “Noncash Charitable Contributions.”
If you think you’re going to owe money to the IRS come April, you can ease the burden by starting to save for it now. Contact your Client Advisor and open a savings account or make a deposit today.
* Deductibility depends on whether you or your spouse is an active participant in an employer’s retirement plan and, if so, on your income.
** Taxes will be due at ordinary income tax rates upon withdrawal from a traditional individual retirement account (IRA) or employer-sponsored retirement plan. Premature withdrawals (generally, those made before age 59½) may be subject to a 10 percent tax penalty, too (does not apply to 457 plans).
This financial institution does not give tax advice. Consult your tax advisor for information specific to your situation.Tags: taxes