There are several tax planning opportunities that you should consider before the end of the year. They include:
1. Contribute the maximum to your pre-tax retirement plan.
2. Make a contribution to a 529 plan to fund education costs for children or grandchildren (taxpayers living in certain states are eligible for a state tax deduction—check your home state for a possible tax deduction and applicable limits).
3. Defer your self-employed income into next year and accelerate expenses into the current year. Income is taxed in the year it is received so by delaying billings until late December for example, you can ensure that you won’t receive the income until next year.
4. Make additional cash or non-cash charitable contributions before year-end.
5. Make a January mortgage payment in December.
6. Work with your broker to harvest any unrealized capital losses to offset any large capital gains.
7. Avoid the kiddie tax, which applies to your dependent child’s (if under age 19 or a full-time student under the age of 24 on December 31, 2016) investment income greater than $2,100. Be careful if you plan to sell the dependent’s stock to pay college expenses. If the gain is greater than $2,100, it will be taxed at your higher tax rate.
8. Make gifts without paying gift taxes. You can give up to $14,000 ($28,000 if married and electing to split gifts) to as many individuals as you like before the end of 2016. Keep in mind that 529 plan contributions are considered completed gifts for tax purposes and are part of the $14,000 limit.
9. If not eligible to make contributions to a traditional deductible IRA, you may want to make non-deductible contributions. 2016 contribution limits are $5,500 with an additional $1,000 for those age 50 or over.