Simplified Year-End Tax Planning

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“The plans of the diligent lead surely to abundance and advantage…” Proverbs 21:5.

As we approach to the end of year 2016, we are ready to review the past year’s planning and strategies. At the same time, this is the last chance to plan for 2016 tax savings. Even though the new government may have several tax law changes in the near future, these changes most likely won’t apply until tax year 2017.

For 2016, the highest federal income tax rate is 39.6%, with high-income individuals possibly still being hit with the 0.9% additional Medicare tax on wages and self-employment income and the 3.8% Net Investment Income Tax (NIIT), which can both result in a federal income tax rate higher than 40%.

Here are some of the tax-saving ideas that you may put into action before year-end:

  • The standard deduction for 2016 is $12,600 for Married-filing-jointly (MFJ) taxpayers. If the total itemized deductions for year 2016 will not be much higher than this standard deduction, taxpayers may consider waiting until 2017 to make payments to some of the itemized deductions items. This method can effectively utilize itemized deductions in 2017 while using the standard deduction for 2016.
  • Net Capital Loss may still offset other earned incomes by $3,000, while Net Long-Term Capital Gain still enjoys favored tax rates capped at 0%, 15%, and 20%. For taxpayers (MFJ) with total income below $400,000, the L-T Capital Gain tax rate will remain capped at 15%.
  • Health Insurance costs have increased dramatically. Taxpayers with high insurance deductibles should consider opening a Health Savings Account (HSA).  A HSA contribution is an income tax deduction. If this is offered by the employer, the taxpayer can also save payroll taxes by contributing to a HSA directly from payroll.
  • The penalty for a lack of health insurance coverage is still a controversial issue.  Applying for health insurance has also become more difficult as taxpayers can only enroll for health insurance during the “Open Enrollment” season (Nov. and Dec.).  It would be a idea to enroll now for year 2017.

Again, these are just some of the tax-saving options to consider. Please feel free to contact me for details about each option.


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Daniel Lu

Daniel Lu - Certified Public Accountant

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