Tax Day â€“ Tuesday, April 18 â€“ is almost upon us. Even with the clock counting down, itâ€™s still not too late to save some money with 2016 deductions. Here are five things you can do to slash your 2016 taxes.
It’s not too late to for physicians to slash their 2016 income taxes. Take these actions.
Contribute to your SEP-IRA by October 16. For the self-employed physician, a SEP-IRA is the easiest and most effective way of creating a flexible retirement plan that lets you defer up to $53,000 or 20 percent of your net earnings from self-employment, whichever is less. The great news is that you can still contribute to a SEP-IRA and reduce your tax liability for 2016.
A SEP-IRA can be funded as late as your income tax filing deadline, including extensions. This gives anyone who files Schedule C until October 16, 2017 to drastically reduce their 2016 tax bills.
Contribute to your Health Savings Account by April 18. HSA Contributions reduce your taxable income dollar-for-dollar. To be eligible, the account owner must have had a high-deductible health plan with a maximum allowable out-of-pocket amount of $6,550 for an individual and $13,100 for a family.
An HSA is a great way to save for future medical expenses because contributions reduce your taxable income and HSA distributions used for qualified medical expenses are tax-free.
The annual contribution limit for 2016 is $3,350 for individuals and $6,750 for families. Participants age 55 or older can also make $1,000 of additional catch-up contributions. There are no income limits.
Deduct state and local sales tax if it’s greater than the income tax. If you itemize deductions, you can choose to deduct either state and local income taxes or state and local sales taxes you paid in 2016. Take whichever results in the largest deduction. You can even include sales taxes paid on your home or home building materials.
Don’t assume something isn’t deductible. Find out for certain. The tax code is long and complex. Before you decide an expense isn’t (or is) deductible, check with an expert. If you use a tax preparer, ask him or her. If you do your own return, you should make sure your advice is coming from a reliable source such as the IRS website.
Don’t overlook one-time deductions. Most people know about annual deductions, such as state income and local real estate taxes, because they happen every year. But less frequent deductions, below, can be valuable.
Theft, fire or other loss? You may be eligible for the casualty, disaster and theft loss deduction. First calculate the loss incurred from each casualty or theft event that occurred during the year, net of any salvage value, insurance or other reimbursement. And then subtract $100 per event. Now you have your net loss. You can deduct the net losses that exceed 10 percent of your adjusted gross income.
Nonbusiness energy property credit. Homeowners who made qualified energy-efficient improvements like adding insulation, energy-efficient exterior windows and doors and certain roofs may be able to claim a credit for 10 percent of the associated costs, excluding installation costs. However, installation costs for certain high-efficiency heating systems, air-conditioning systems, and water heaters and stoves that burn biomass fuel can be deductible. There’s a lifetime limitation of $500, of which only $200 may be used for windows.
Residential energy efficient property credit. Homeowners who make energy-efficient improvements to their primary residences can reduce their taxes by 30 percent of the cost of the qualified alternative energy equipment installed on or in their homes. Eligible are solar hot water heaters, solar electric equipment, and wind turbines. Unlike some credits, there is no dollar limit for most types of property, and any unused credit can be carried forward to the following year’s tax return.
Job-hunting costs. If you looked for a new job in your current line of work, you can deduct expenses for items such as travel, resume printing and mailing, and some placement-agency fees.
Adoption. Tax benefits for adoption include both a tax credit for qualified child adoption and an exclusion from income for employer-provided adoption assistance.
A final thought: your tax preparer can't read your mind. We tax professionals aren’t psychics. If you don’t tell us, we don’t know. So make sure you give your preparer everything that’s relevant. Ask if you’re not sure. That’s the best way to avoid missing a potentially valuable deduction.
Benjamin Sullivan, Certified Financial Planner (CFP®), Enrolled Agent (EA), is a client service and portfolio manager with Palisades Hudson Financial Group in Austin, Texas. Enrolled Agent is a designation granted by the IRS to tax preparers who meet its high standards. The firm handles hundreds of tax returns annually.
Palisades Hudson Financial Group is a fee-only financial planning firm and investment manager based Fort Lauderdale, Florida, with more than $1.2 billion under management. It offers financial planning, wealth management, financial management and tax services. Branch offices are in Atlanta; Georgia; Austin, Texas; Portland, Oregon; and Stamford, Connecticut.