It’s never too early to start thinking about ways to reduce your 2016 tax liability. Planning early in the year is a must!
- Contribute to your retirement plan until it hurts! Depending upon what type of employer sponsored plan you have you can you have the opportunity to contribute a large amount to the plan:
401k $18,000 plus catch up for age 50 or over $6,000
Simple $12.500 plus catch up for age 50 or over $3,000
The employer may provide a matching contribution. At least contribute the % that the employer matches; this is “free” money to you!
Also please realize the amount of money contributed to your retirement plan is pre-tax; thus saving you on average 25% Federal and depending on what State you reside in 3.5%-6%. (The tax savings is based on the average tax bracket of 25% Federal)
If your employer does not offer a retirement plan consider an IRA contribution. $5,500 (catch up $1,000) contribution will still provide tax savings)
Please remember these contributions are tax deferred; not tax free. You will be paying tax when you withdrawal the money at retirement. But the expectation is you will be in a lower tax bracket at retirement.
- Consider an employer flexible spending plan. These plans are great if you have any out of pocket health expenses or dependent care expenses. The plans are pre-tax; thus saving you Social security, Medicare, Federal, and State taxes. But keep in mind with these plans you are required to use the funds within the period of time or lose the funds.
- Consider increasing your non-cash charitable contributions. Instead of dropping those clothes, household items, and toys at the “box” on the corner, consider a charity that provides a charity receipt. Realize you will need to do the legwork and provide a list of what was donated, a value, and date it was donated. But isn’t tax savings worth that extra work?
- Harvest your losses-as the year-end comes to a close ensure your financial advisor is looking at your portfolio and harvesting any losses against the gains that have occurred in the portfolio. This should be reviewed every year.
These are just a few tips to help reduce your taxes as you move forward for 2016!
Accounting and tax services are provided by Wamhoff Accounting Services, Inc. and is independent of VSR Financial Services, Inc.
Until next time!