Lowering Tax Liability in December

[dsp0725]

I didn't make any estimated tax payments in 2016, mostly because we got married and I wasn't sure how much cash we would need.

I'll be getting a rough idea of my tax bill for 2016 this week. Already funded my 401k and Roth IRA. I don't have an HSA set up yet, but was considering it this year.

Are there any other tips you guys have for lowering your tax bill with just a few weeks left? At this time we don't need any office supplies or equipment for our business.

 

[COcheesehead]

Donations, tax loss harvesting, make an extra mortgage payment.

 

[dsp0725]

Donations, tax loss harvesting, make an extra mortgage payment.

tax loss harvesting.... can you be more specific please.

 

[COcheesehead]

tax loss harvesting.... can you be more specific please.

Selling positions that you have a loss in, but be careful of the Wash rule. Here's more info.
Forbes Welcome

 

[dsp0725]

You think an HSA would be an absolute must? Is there anything else I should consider.... booking business vacations in advance, anything else we could buy?

 

[savory]

Another way of saving is making your estimated tax payments. You may get hit with a penalty this year for underpaying I am not sure but perhaps it would help if you paid something before the end of the year. But, I am guessing it is too late.

 

[audreyh1]

Is your insurance HSA compatible? Has it been all year?

If you have HSA compatible insurance this month and plan to have it for the next 12 months, you can make a full year contribution this month even if you didn't have it the other 11 months.

 

[RunningBum]

It's foolish to not make a full HSA contribution if you have an HSA compatible plan. It should be done before a 401K or Roth IMO.


I'll illegal to make a contribution if you don't have such a plan.

 

[GreenER]

I am class if 2017 and trying to max out 401k in my last 5 months if earned income next year. I may not manage to do that and also fund HSA for the two of us. In my case I think funding 401k first makes sense as I can still fund HSA with no earned monies (pension,cap gains etc). Does that make sense?

 

[CaliKid]

If one can control the timing of their income (i.e. small business owner) hold it until next year. Almost certainly will be lower tax rates for most. Deductions this year and income next year!

 

[dsp0725]

If one can control the timing of their income (i.e. small business owner) hold it until next year. Almost certainly will be lower tax rates for most. Deductions this year and income next year!

This is a really good point!!

 

[RunningBum]

I am class if 2017 and trying to max out 401k in my last 5 months if earned income next year. I may not manage to do that and also fund HSA for the two of us. In my case I think funding 401k first makes sense as I can still fund HSA with no earned monies (pension,cap gains etc). Does that make sense?

Yeah, I figured there was an exception or two but I couldn't think of them before I had to head out to meet some friends this morning, so I just added the IMO caveat. I meant "first" only in the sense that if you can't come up with the money to do them all, don't leave out the HSA. But I need to correct myself, if you get matching contributions, a 401K up to the match point is really best.

After that, I believe the HSA is the best investment because
- it gets deducted from your income, before MAGI is calculated
- if you use it for qualified medical expenses, withdrawals are not taxed. So it's basically like a tIRA going in and a Roth IRA coming out--the best of both worlds. Your gains are also untaxed.
- If you need it and don't have any qualified expenses to use it for, you can still withdraw after age 65 and pay regular tax, as you do with a 401K or tIRA. But remember you can save receipts from when you opened your HSA and reimburse yourself anytime, including years later, so most people will probably find enough qualified expenses to make withdrawals tax free.

The drawback to an HSA is that most accounts have fees attached and/or limited investments. There is at least one recent thread on where to find better HSA accounts.

 

[DrRoy]

Donations, tax loss harvesting, make an extra mortgage payment.

+1

 

[jebmke]

The HSA contribution can also be made in early 2017 (prior to tax filing deadline which I think is April 18) for the tax year 2016. It almost always makes sense to make a maximum contribution to an HSA to the extent that you are eligible.

 

[GreenER]

I do plan to fully fund HSA in 2017 but will do so from pension payments after I retire and I will be directing all of my earned income in my last 5 months of w*rk toward funding 401k to max.

 

[Senator]

Are there any other tips you guys have for lowering your tax bill with just a few weeks left? At this time we don't need any office supplies or equipment for our business.

You have a business, that will make a large difference.

Buy more office supplies for 2018. Pay insurance ahead. Buy a cell phone for the business and pay all of 2017 cell charges. Throw a company party for all your employees, even if it is only one. Book revenues for 2017, rather than 2016, delay depositing checks in 2016, wait until 1/1.

Buy stamps, paper, fill up the company car with fuel on 12/31 and buy car washes (if you use the actual cost method). Pay your kid to do some work up to the amount that no tax is due. Pay your accountant for taxes now, rather than in 2017. Buy new business software like Quicken now.

Anything charged in 2016 is a 2016 expense, even if paid in 2017. Any expenses paid in 2016, even if for 2017, is a 2016 expense.

 

[Gill]

You think an HSA would be an absolute must? Is there anything else I should consider.... booking business vacations in advance, anything else we could buy?

Since when is a business "vacation" deductible?
Bruce

 

[COcheesehead]

Check out this article from USA TODAY:

5 tax breaks you can still get for 2016

5 tax breaks you can still get for 2016

 

[samclem]

Are there any other tips you guys have for lowering your tax bill with just a few weeks left? At this time we don't need any office supplies or equipment for our business.

If your itemized deductions are fairly close to the standard deduction you'd get anyway, then it is useful to "bunch" itemized deductions every other year. For example, "advance" as many of your future 2017 deductible expenses into 2016 as possible (e.g. make 2017 charitable contributions early, pay your property taxes for 2017 in Dec of 2016, also make the Jan 2017 mortgage payment (with its deductible interest) in Dec 2016, etc.) So, you'd group all these itemizable expenses into 2016 and take the itemized deductions that year. Then, in 2017, just take the standard deduction. When you get to the end of 2017, look for deductible 2017 expenses (state/local taxes, etc) that you can safely delay until Jan of 2018--and late in 2018 again pre-pay as many 2019 deductible expenses as possible, and take the itemized deductions in 2018. Rinse and repeat.
If your itemized deductions would otherwise be fairly close to the standard deduction amount, this strategy can let you significantly reduce your taxes by maximizing the total amount of itemized deductions while getting the most benefit from the available standard deduction.