Nov 22, 2016 |
| Sticky post
10 ways to reduce your 2016 federal income tax bill
Find out how to legally avoid paying incomes taxes. There are 10 ways to reduce your 2016 federal income tax bill.
Find out how to legally avoid paying incomes taxes. There are 10 ways to reduce your 2016 federal income tax bill. IRS cannot fault you for these tips.
- Donate, Donate, Donate .Give clothing, furniture or even cars to charity to get a deduction. But make sure you give to a charitable organization recognized by the IRS and that you get a receipt that states the item and a reasonable value. Remember, even giving food to a food pantry counts. So does travel and parking for your volunteer work for a charitable organization.
- Then Donate Some More. Instead of coming up with cash, consider giving stock, mutual funds or other investments to charitable organizations, including your church or other place of worship. The investments are more valuable than cash because neither you nor the charity will have to pay taxes for the gains in their value, or what’s known as a capital gain. Seniors over 70½ also have an attractive way to give. They can give to a charity directly from their individual retirement accounts. The gifts from IRAs get counted toward the withdrawals that the IRS makes people take from their IRAs during retirement, and it does it without generating taxes on income.
- Make a move. If you are going to be moving soon for a new job and can get the move done in the next few weeks you will be able to deduct the moving expenses on your next tax return, provided you move to be at least 50 miles closer to the new job than you would have been in your old home. Also, you need to be working full time.
- Find a new job. If you are looking for a new job, you can deduct the expenses for your job hunt; including everything from printing resumes to traveling to another city for an interview if you aren’t reimbursed for the trip. The expenses, however, have to exceed 2 percent of your adjusted gross income.
- Go to the doctor. If you’ve had a lot of medical expenses this year, don’t let them go to waste. To deduct them, they must total 10 percent of your income, or 7.5 percent if you are over age 65. You might get to the threshold by adding glasses, a dentist visit or nonurgent surgery. Transportation costs to the doctor also count.
- Reduce your income. If you simply earn a salary, you don’t have the control some people have. For example, with a small business you can bill a client at the end of this year so you get paid next year. But people do have the ability to reduce the income they will be taxed on if they stuff as much as possible into a 401(k) or IRA. You can put as much as $18,000 into a 401(k), or $24,000 if 50 or older. In an IRA, the maximum contribution is $5,500 or $6,500 if 50 or older. Just make sure you use an IRA; not a Roth IRA, if the goal is to cut your taxes. And if you are a sole proprietor of a small business, you could cut your taxes dramatically by opening a retirement account known as a SEP IRA or a solo 401(k).
- Pay your mortgage and local and state taxes now. If you have a mortgage payment or a state or local tax bill that’s due in January, pay it this year so you can get the deduction. Dustin Stamper, director of Grant Thornton’s Washington National Tax Office, notes that you can’t prepay a number of upcoming 2017 taxes and mortgage payments, but you can make sure you get the 2016 payments covered before the end of the year.
- Buy a car or boat. If you live in a state with no income tax, large purchases resulting in big sales taxes can be valuable for deductions. The IRS lets people deduct either their state income taxes or sales taxes. So if you are going to be buying a car and would like a large sales tax deduction this year, make the purchase in 2016. Stamper notes that since you have a choice between deducting sales tax or income tax, combining purchases of cars and a boat might make the sales tax deduction more valuable than the income tax deduction.
- Pay for college. If you or your child is in college or a trade school, you can get a credit of up to $2,500 per student for the year. So make sure you have paid college expenses before the end of the year to qualify for 2016. You’ll be able to claim the credit again next year if the individual is still a student. In fact, you can claim the credit on up to three students a year, for a total of $7,500 in credits.Also, if you are done with college and paying student loan interest you can deduct some or all of it, so make sure you are up to date paying off your loans. Either parents or students can claim this deduction, depending on the payments
- Sell losing investments. If you’ve sold investments that have gained value since you bought them, you will owe taxes on the gains if you are in the upper tax brackets. So consider selling a losing investment to offset the gain and avoid the taxes.
This is our 10 ways to reduce your 2016 federal income tax bill. This should help any struggling taxpayer save a little on their tax debt for 2017. Find out how much you already owe the IRS with our Income Tax Calculator 2016.
Posted in: IRS, Tax Planning | Tags: 2016, 2016 federal income tax bill, Tax Tips