Sprint to the Finish!
As the year winds down, you may have a few last-minute tax items to address. For most of us, December 31 is the last day to take actions that will impact our 2016 tax returns:
- Charitable contributions are deductible in the year made; any donations charged to a credit card before the end of 2016 count for the 2016 tax year, even if the credit card bill isn’t paid until 2017. Checks written to a charity will be considered a 2016 contribution as long as they are mailed by December 31. If you are looking to maximize your 2016 deduction for charitable contributions, you should also drop off any household goods or other items at Goodwill prior to the end of the year. Every dollar counts!
- Medical expenses paid in 2016 are deductible on your 2016 return, even if paid with a credit card. In order to be deductible, your total medical expenses must exceed 10% of your adjusted gross income (7.5% if you or your spouse are 65 or older at the end of the year). Once you exceed that amount, you can only deduct the expenses above the 10% (or 7.5%) floor. Given that, if you will meet the 10% floor (or 7.5%, for those 65 and older), maximize your deduction for 2016 by paying all your lingering medical bills prior to the end of the year!
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One deductible expense you may be able to control is your property tax payment. You can pay property taxes relating to 2016 which are due in 2017 prior to the end of the year, then deduct the payment on your 2016 return. Property Tax payments are deductible in the year made, which gives you some leeway. If your final 2016 property tax payment is due in 2017 and you prefer to take the deduction in 2017, hold off on making the payment until the new year.
- In most cases, taxpayers who are over age 70 ½ are required to receive distributions from IRAs prior to the end of 2016. If you turned 70 ½ in 2016, a special rule allows you to wait until April 1, 2017 to take the 2016 distribution. You will then need to take your 2017 distribution prior to the end of 2017, which may increase your income substantially for that year.
- Most workplace retirement account contributions should be made by the end of the year; however, 2016 IRA contributions can be made until April 18, 2017. Consult your tax pro or IRS regulations to see how much you are allowed to contribute for 2017.
- If your name has changed in 2016 due to marriage, divorce, or other life circumstances, you must notify the Social Security Administration (SSA) so the new name will match IRS and SSA records. You will need to file your tax return with the name on file with the SSA – if there is a delay in processing your name change, there may be a delay in processing your tax return.
The IRS allows very little flexibility in most issues, so it’s important to be aware of how the timing of year-end items may impact your tax return. Take advantage of timing items to best benefit you on your 2016 and 2017 returns!