Thanksgiving is over, the Christmas season is in full swing and another year is rapidly coming to a close. However, there are still actions that you can take now to lower your 2016 tax bill. My standard advice for this year (and any year for that matter) is very simple:
Defer income until 2017 where that is possible and accelerate deductions into 2016.
This strategy takes on even more importance in the wake of November’s elections for two big reasons:
First, the prospects of lower tax rates are very high given the Republican majority in Congress and a Republican President who campaigned on that very issue. There is likely to be legislation passed in 2017 that would lower tax rates across the board and it is not out of the realm of possibility that those cuts would take effect retroactively to January 1, 2017. The potential for lower rates on January 1 makes the postponement of income until 2017 very attractive.
Second, tax reform may also bring major changes to tax deductions. Both Trump’s plan and the GOP House plan call for a higher standard deduction ($ 30,000 and $ 24,000 respectively versus the current $ 12,600 for married filing jointly). This would replace many of the itemized deductions that we have been accustomed to such as property taxes, mortgage interest, state income taxes and charitable contributions. So 2016 could be the last year to take advantage of these deductions for some people.
Here are a few moves to consider between now and December 31:
- Make that year end charitable donation to your favorite charity.
- If you are making estimated tax payments, make the fourth quarter state payment by December 31.
- Homeowners can make your January mortgage payment early and/or pay the property tax bill before year end.
- If you’re thinking about dumping that losing stock, you could sell now in order to deduct the loss in 2016.
- Business owners or those working on commission could delay billing customers until January, if feasible. Also, businesses could consider making major equipment purchases in December.
Remember: deferring income and accelerating deductions is a good move that can lower your 2016 taxes no matter what happens with tax legislation. We will be following Congress very closely in the New Year to see if and when this tax reform becomes a reality!