2016 Year-end Tax Planning
Tuesday, October 18, 2016

As we get closer to the end of yet another year, it's time to tie up the loose ends and implement tax saving strategies. With no major new tax laws enacted this year, this year's planning should be easier. Of course, the national elections, bring about a certain amount of angst in the tax and financial world, but at least we know what the tax laws are for 2016 and the odds of tax law changes in the near future seem pretty slim regardless of who is elected.

We've listed below a few money-saving ideas that you may want to put in action before the end of 2016:

  • Holding on Longer Can Lower Your Taxes. If you hold appreciated securities in taxable accounts, owning them for at least one year and a day is necessary to qualify for the preferential long-term capital gains tax rates. Depending on your taxable income, the 2016 federal income tax rates on long-term capital gains and qualified dividends are 0%, 15%, and 20%, with the maximum 20% rate affecting taxpayers with high income. In contrast, short-term gains are taxed at your regular rate, which can be as high as 39.6%.
  • Harvest Capital Losses. Selling some loser securities (currently worth less than you paid for them) before year-end can also be a tax-smart idea. The resulting capital losses will offset capital gains from other sales this year, including high-taxed short-term gains from securities owned for one year or less.
  • Make Charitable Gifts of Appreciated Stock. If you have appreciated stock that you've held more than a year and you plan to make significant charitable contributions before year-end, keep your cash and donate the stock (or mutual fund shares) instead. You'll avoid paying tax on the appreciation, but will still be able to deduct the donated property's full value.
  • Maximize Contributions to 401(k) Plans.  If you have a 401(k) plan at work, tell your company how much you want to set aside on a tax-free basis for next year. Contribute as much as possible to save dollars on April 15th. 
  • Take Advantage of Flexible Spending Accounts (FSAs). If your company has a healthcare and/or dependent care FSA, before year-end you must specify how much of your 2017 salary to convert into tax-free contributions to the plan. You can then take tax-free withdrawals next year to reimburse yourself for out-of-pocket medical and dental expenses and qualifying dependent care costs. Note, FSAs are "use-it-or-lose-it" accounts-you don't want to set aside more than what you'll likely have in qualifying expenses for the year.
  • Consider a Health Savings Account (HSA). If you are enrolled in a high-deductible health plan and don't have any other coverage, you may be eligible to make pre-tax or tax deductible contributions to an HSA of up to $6,750 for a family coverage or $3,350 for individual coverage-plus an extra $1,000 if you will be 55 or older by the end of 2016. Distributions from the HSA will be tax free as long as the funds are used to pay unreimbursed qualified medical expenses. Furthermore, there's no time limit on when you can use your contributions to cover expenses. Unlike a healthcare FSA, amounts remaining in the HSA at the end of the year can be carried over indefinitely.
  • Take Advantage of Tax Breaks for Purchasing Equipment, Software, and Certain Real Property. If you or your company have plans to buy a business computer, office furniture, equipment, vehicle, or other tangible business property or to make certain improvements to real property, you might consider doing so before year-end to capitalize on the following generous tax breaks:
    • Section 179 Deduction. Under the Section 179 deduction privilege, an eligible business can claim up to $500,000 of immediate first-year depreciation write-offs for the cost of new and used equipment, software additions, and qualified costs for restaurant buildings and improvements to interiors of retail and leased nonresidential buildings. This deduction is an immediate way to reduce your tax liability. Note, that limits apply to the amount that can be deducted for most vehicles.
    • First-year Bonus Depreciation. Above and beyond the Section 179 deduction, your business can claim first-year bonus depreciation equal to 50% of the cost of most new (not used) equipment and software placed in service by December 31 of this year. For a new passenger auto or light truck that's used for business and is subject to the luxury auto depreciation limitations, 50% bonus depreciation increases the maximum first-year depreciation deduction by $8,000 for vehicles placed in service this year.


Costumes for a Cause

Soukup, Bush & Associates is also excited to announce our upcoming Halloween Fundraiser! From now until the end of the month, we will be collecting donations for a local not-for-profit, Project Self-Sufficiency. This fantastic organization assists low-income single parents in Larimer County realize their dreams of financial independence. 

Our Associates will be donating money to PSS in order to wear Halloween costumes on Monday, October 31st.  We would like to encourage all of you to come into our office wearing your costumes as well! Any donations will be gladly accepted for this wonderful cause.   Learn More