Taxes may not be on your mind this time of year. We are still in beautiful fall and tax filing season seems so far away. But don't wait until the end of the year to think about ways you may reduce your 2017 taxes. After year end your strategies are very limited.
10 Smart Ways to Reduce Your 2017 Taxes
1. Establish an IRA. Contributions up to $5,500 (or $6,500 if at least age 50) to a traditional IRA may be tax deductible if you have earned income and your adjusted gross income doesn’t exceed certain threshold amounts. You have until April 15, 2018 to contribute to an IRA for 2017.
2. Contribute to your employer’s 401(K) plan. You can have up to $18,000 (or $24,000 if at least age 50) withheld from your salary to reduce your taxable compensation and provide for future retirement needs.
3. Defer income and delay taxes owed until next year. Bill your clients in January instead of at end of December or ask your employer to issue your end of year bonus check in January. Companies can still deduct bonuses paid in the beginning of 2018 on their 2017 tax return. Deferring income is a great idea if you have a high school senior or a student in college and you’re applying for financial aid for your student.
4. Sell stocks that have incurred a loss to offset your capital gains and up to $3,000 of other income. Any excess loss is carried forward to future years.
5. Donate stocks to a charity. If the stock has appreciated in value, donate the shares and you can claim the fair market value of the donated stock as a deduction. If you sell these shares before you donate them, you’ll have to report the gain on your return. If the stock has decreased in value, sell the stock first and donate the proceeds. This way you get to report the loss on your return as well as claim a charitable donation deduction.
6. Mail in your 4th quarter estimated state tax payment in December instead of January to get the tax deduction in 2017. However, consult a tax adviser if you expect to be subject to alternative minimum tax.
7. Increase your itemized deductions. This is a good opportunity to clean out of your closets and make tax deductible charitable donations before year end. Pay your January mortgage payment in December to take the tax deduction for the interest paid on the 2017 return. Paid medical expenses are deductible but only if they exceed 10% of adjusted gross income.
8. Maximize your Health Savings Account Contributions. These contributions are tax deductible. Even if you qualified to participate in an HSA late in the year, you can still make a full year of annual allowed deductible HSA contributions to the plan.
9. Consider an installment sale or a like-kind exchange if selling business assets or real estate. This will reduce the gain recognized in 2017. Such a move could also reduce your 3.8% net investment income tax imposed on net investment income for taxpayers with Modified Adjusted Gross Income exceeding certain amounts.
10. Remember to take your required minimum distributions from your IRA before year end if you’re 70 ½ years old or older. Not taking these distributions will result in penalties. If you like to support charities, you may donate these taxable required minimum distributions from the IRA directly to charities tax free for up to $100,000 of donations.
Our CPA, Michael Allen, can help you with tax planning and possibly find ways to reduce your 2017 tax liability. By having some planning done before year end, you avoid getting unexpected surprises at tax time. Call our office today to get started with tax planning. You may reach us at our Kennesaw office at (770) 428-6229.
The tax law is complex. We are here to help.
Allen & Company, PC - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta. Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses. Extensive experience working with franchised quick service restaurants and other franchised businesses.