Published on 4/21/2016
Written by: Timothy Dages, CPA, CFP
Now that the April 18 income tax filing deadline has passed, it may be tempting to set aside any thought of taxes until year end is approaching. But don’t succumb. Maybe you were frustrated or surprised because you owed additional tax when your return was filed. Maybe you would rather have the excess withholding in your paycheck during the year as opposed to waiting until your tax return is filed to get your refund. Now is the time to look at what adjustments might be made to change the that situation when your 2016 tax return is filed. For maximum tax savings, the time to start tax planning for 2016 is now.
A tremendous number of variables affect your overall tax liability for the year. Starting to look at these variables early in the year can give you more opportunities to reduce your 2016 tax bill.
For example, the timing of income and deductible expenses can affect both the rate you pay and when you pay. By regularly reviewing your year-to-date income, expenses and potential tax, you may be able to time income and expenses in a way that reduces, or at least defers, your tax liability.
Or it might just be an adjustment in the way you track and accumulate your tax information throughout the year. Try to have a centralized location that you accumulate your tax documents throughout the year. This makes it easier come tax time next year and it also helps make sure you have all of your documents. This is important with charitable contributions when the acknowledgement letters are received throughout the year when the contributions are made.
In other words, tax planning shouldn’t be just a year-end activity it should go on throughout the year as an ongoing process.
In recent years, planning early has been a challenge because there were a lot of expired tax breaks where it was uncertain whether they’d be extended for the year. But the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) extended a wide variety of tax breaks through 2016, or, in some cases, later. It also made many breaks permanent.
For example, the PATH Act made permanent the deduction for state and local sales taxes in lieu of state and local income taxes and tax-free IRA distributions to charities for account holders age 70½ or older. So you don’t have to wait and see whether these breaks will be available for the year like you did in 2014 and 2015.
Another item to keep in mind as well is if you are utilizing the Health Insurance Market Place make sure you up date any changes that occur during the year to your income or family status so as to avoid the need to payback any of the advance credit if your income increases or to obtain additional credit if your income decreases. Changes in family status should also be reported.
Also, make sure to review your property tax exemptions to make sure you are receiving all the exemptions you are entitled to. This is important in a year that you purchase a new home or refinance an existing mortgage.
To get started on your 2016 tax planning, contact Paul or Tim at Bogdanoff Dages and Co., P.C.. We can discuss what strategies you should be implementing now and throughout the year to minimize your tax liability.