2017 Tax Planning – Start Now!
With the tax deadline of April 18th approaching, many are anxious and scrambling to finish their taxes. While you may be in a frenzy trying to finalize your information for 2016, now is a great time to consider your tax planning strategies for 2017. You can have a great impact on this year by making some key moves now!
Maximize Retirement Savings. The easiest way to reduce your taxable income is to contribute as much as possible to tax-deferred (or tax-free) retirement savings accounts. For 2017, you may be able to defer up to $18,000 to a 401(k) plan. If you’re age 50 or older, you can make an additional catch-up contribution of $6,000. If you are self-employed, there are a few options as well such as SEP IRAs or individual 401(k)s. The annual limit on IRA contributions (Traditional or Roth) remains $5,500, with a catch-up limit of $1,000 for those over 50. If you wait until late in the year to make these elections, you may not have enough time to get these plans fully funded.
Take Advantage of HSA Accounts. Many investors underutilize health savings accounts (HSAs) with employers at work, a powerful savings tool available to people enrolled in high-deductible health insurance plans. Contributions are made with pretax dollars, assets grow tax-free, and distributions are tax-free if used to pay for qualified medical expense. A huge benefit to a HSA is if you use other funds to pay your current medical expenses, and let the HSA grow and use it when you are retired.
Review Your W-2 Withholdings. If you typically receive a large refund from the IRS every year, consider updating your employer’s W-2 form to reduce the amount of taxes withheld from each paycheck. There is no reason to loan Uncle Sam money interest free. Conversely, if you typically owe a lot to the IRS every April, you may want to make changes on your W-2 to avoid the pain of writing a large check every year.
As a reminder, you should also be careful not to miss opportunities for tax deductions, such as mortgage interest, business expenses, job hunting expenses, and charitable donations. Don’t forget to reach out to us and/or your tax advisor for tips on developing strategies for financial success early in the year!