Year-End Tax Estimate and Planning Tips for Tax Year 2016
Before you file your 2016 taxes, make sure you have done all the tax planning you can. Estimate your taxes and plan your deductions. A little tax planning can lead to a lot of tax savings!
We recommend using this list of 13 tasks to tax plan for 2016:
1. Estimate Your Taxes (and Your Tax Refund) - Use a Tax Calculator
Don't wait until the end of the year to estimate your taxes. Plan your deductions and estimate your tax refund with the easy to use efile.com tax calculator.
Avoid Surprises, use the FREE 2016 Tax Calculator and Tax Estimator Below:
Free 2016 Tax Calculator
We also recommend using the following FREE Educator Tax Tools:
Who is a Dependent? | Is a Relative My Dependent? | How Should I File?
Am I A Head of Household? | Can I Claim the Earned Income Tax Credit? | Can I Claim the Child Tax Credit?
2. Save Money with a Flexible Spending Account
A "spending" account is different form a "savings" account. You must use up your Flexible Spending Account (FSA) dollars or they disappear. If you still have money left in your FSA at the end of the year, don't let it go to waste. You can still get new glasses or contacts, or go see your dentist. New legislation even allows you to buy over-the-counter medications with FSA dollars as long as you have obtained a prescription from your doctor. Be sure to check with your employer to see if they offer a 2 1/2 month grace period in which to spend your flex dollars after the year ends.
3. Deduct Points Earned for Refinancing Your Home Mortgage
If you refinanced a home mortgage in and it is a subsequent refinancing (which means you have already refinanced the original mortgage used to purchase the home), then points spent on the prior refinancing become fully deductible. (Each "point" equals 1% of the total loan amount.) Learn more about home ownership tax deductions.
4. Make Contributions in an Education Savings Account
Estimate your tax return with different education savings options. Want to contribute to a Coverdell Education Savings Account (ESA) or a 529 collage savings plan for your child or grandchild? You can make contributions of up to $2,000 per child (not per account).
Though you cannot deduct education savings account contributions on your federal tax return, you may qualify to claim at least a partial deduction or credit on your state tax return, as long as you fund the account by December 31. Currently, this deduction or credit is available in the following states:
5. Make Charitable Contributions
Donating clothing and household goods by the end of the year will allow you to deduct the fair market value of those donations on your tax return. This may result in a bigger refund or reduced tax bill next April!
For all charitable contributions of cash and donations of goods worth over $250, you must have a bank record or written communication from the charity in order to claim the deduction. In addition, you must make sure that the organization is a qualified charity (you can confirm qualified charities with the IRS).
To qualify for a deduction on your 2016 tax return, make sure you send any checks in the mail by December 31, 2016. If you're paying by credit card, put the gift on the card before the end of the year and pay the bill in January. Make sure you obtain a receipt for your records (either cancelled check or your credit card statement). If the donation is over $250, you must get a written statement from the charity.
If you plan to make a significant gift to charity this year, consider giving stocks or mutual fund shares that you've owned for more than one year. Doing so boosts the savings on your tax return. Your charitable contribution deduction is the fair-market value of the securities on the date of the gift, not the amount you paid for the asset, and you never have to pay tax on the profit.
6. Claim Miscellaneous Tax Deductions & Get More Tax Savings
Even if you claim the standard deduction instead of itemizing personal deductions, don't overlook adjustments to gross income to which you may be entitled. Some often overlooked deductions include moving expenses, student tax breaks, purchase of an electric car, and deductible IRA contributions. If you have any investments that have generated deductible losses, you can use the losses to offset any gains.
7. Claim Dividend Income
Check Form 1099-DIV to determine which dividends from mutual funds qualify for the maximum 15% tax rate. Check the box “qualified” to figure which dividends are paid from permissible sources—you must also determine whether you've held the shares on which the dividends are paid for more than 60 days during the 121-day period surrounding the ex-dividend date.
8. Claim Capital Gains & Disaster Loss
By claiming gains with disaster losses, you may be able to avoid paying capital gains taxes. If you have more losses than gains, you claim up to $3,000 to offset your ordinary income. Then, you can save the rest of the losses for future tax years.
You can claim a disaster loss on your 2016 Tax Return or on an amended 2015 Tax Return. Select the year in which your adjusted gross income was lower so that your disaster loss deduction will give you a greater write-off and more tax savings.
9. Deduct Your Car Mileage for Business Use
You might be able to use the actual expense method or the IRS standard mileage rate to deduct your car expenses. You need proof of the costs incurred for business driving, select the method that gives you the greater write-off. If you don't have this proof, rely on the IRS standard mileage rate.
10. Claim Small Business Tax Deductions
Did you purchase new equipment for your business in 2015? Depreciable business equipment includes such common items as cell phones and computers. If you have bought such items, you may be able to write off the expense over the useful life of the item. Select the method of depreciation that will provide you with the greatest tax savings. Learn more about tax deductions for self-employed workers.
11. Give Gifts Without Paying Taxes
You can give up to $14,000 to as many individuals as you like before December 31, 2016 without filing a gift-tax return. If you're married, you and your spouse can give up to $28,000 per recipient.
If you're contributing money to a 529 plan, you can put up to $70,000 into the plan tax free and frontload the plan for five more years.
12. Keep Track of Retirement Plan Contributions (For 401K's & IRA's)
You should try and max out your 401K contributions by the end of the year. Any dollar amount you contribute to your 401(k) or similar employer-based retirement plan plan (if it's not a Roth) is excluded from your income, lowering your tax bill. You can put some extra dollars into your retirement plan during your last few pay period, or put money from your year-end bones to add to your savings.
If you have a traditional individual retirement account (IRA), your contributions are tax deductible. However, you'll owe income taxes on any withdrawals. If you have a Roth IRA, you can invest money after taxes are taken out, but your withdrawals are 100% tax free.
Please be aware that you have until next April 15 to fund a traditional or Roth IRA for 2016. However, the sooner you save the more time you'll have to gain benefits of tax-deferred growth.
Learn more about retirement plan contributions.
13. Move Up Your Tax Deductions
You may want to reduce your tax bill by moving up as many deductible expenses as possible. This can be especially beneficial to you if your income will be high (i.e. by selling property or cashing out winning investments).
Other ways you can speed up your tax deductions include, but not limited to:
- Donating more to charity
- Making your January mortgage payment in December (which will give you extra interest to deduct)
- Prepaying your property taxes
- Sending estimated state and local taxes that you would otherwise pay in January
However, don't carry out this strategy if you expect to be in a higher tax bracket in the next year. If you'll be in that situation, you may want to claim the deductions that year.
More Information on Tax Planning
Tax Return Planning Guide
Itemized Deductions or Standard Deductions?
Tax Return Preparation and Tax Deduction Checklist
More Year-End Tax Estimate and Tax Planning Tips
Use the efile.com Taxometer Tool to update your W-4 tax withholding and reach your tax goals!
Estimate your 2016 refund or tax payments: Use the FREE 2016 Tax Return Calculator
Want to claim a dependent? Qualify for Head of Household filing status? Play with our FREE Tax Toys & Tools!