Year-End Tax Estimate and Planning Tips for Tax Year 2016
Make sure you complete all the tax planning you can before you file your 2016 tax return. It could lead to a bigger tax refund or lower tax bill! Consider these tax planning tasks:
1. Estimate Your Taxes with a Tax Calculator
Plan your tax deductions or credits by estimating your tax refund or taxes owed with the efile.com tax calculator 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
Don't let any money in your Flexible Spending Account (FSA) go to waste because it will disappear if you don't spend it by December 31. Use the money to buy new glasses or contacts, visit your dentist, or buy over-the-counter medications (make sure you obtain 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 and it is a subsequent refinancing (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.
4. Make Contributions to an Education Savings Account
You can contribute up to $2,000 for a child or grandchild's Coverdell Education Savings Account (ESA) or 529 collage savings plan. Though you cannot deduct these 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. This deduction or credit is available in the following states:
5. Make Charitable Contributions
Donating clothing and household goods by December 31 will allow you to deduct the fair market value of those donations on your tax return. For all charitable contributions of cash and donations worth over $250, send any checks in the mail by the end of the year. 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 (a canceled check or credit card statement). If the donation is over $250, you must get a written statement from the charity. Confirm with the IRS that the organization is a qualified charity.
Giving stocks or mutual fund shares that you've owned for more than one year may boost 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. You never have to pay tax on the profit.
6. Claim Miscellaneous Tax Deductions
Even if you claim the standard deduction instead of itemizing personal deductions on your tax return, don't overlook adjustments to gross income such as moving expenses, student tax breaks, electric car purchases, and 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
Use Form 1099-DIV to determine which dividends from mutual funds qualify for the maximum 15% tax rate. Check the “qualified” box 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
You may be able to avoid paying capital gains taxes by claiming gains with disaster losses. If you have more losses than gains, claim up to $3,000 to offset your ordinary income. You can save the rest of the losses for future Tax Years.
Claim the 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 (select the method that gives you the greater write-off). You need proof of the costs incurred for business driving. If you don't have this proof, rely on the IRS standard mileage rate.
10. Claim Small Business Tax Deductions
If you are self-employed and purchased new equipment for your business in 2016, you may be able to write off the expense over the useful life of the item. Depreciable business equipment includes cell phones, computers, and other common items. Select the method of depreciation that will provide you with the greatest tax savings.
11. Give Gifts Without Paying Taxes
You can give up to $14,000 to as many individuals as you like before December 31 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
Max out any 401K retirement plan 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.
Contributions to a traditional individual retirement account (IRA) are tax deductible, but you'll owe taxes on any withdrawals. However, if you have a Roth IRA, you can invest money after taxes are taken out and your withdrawals are 100% tax free.
You have until April 18, 2017 (Tax Day) to fund a traditional or Roth IRA for 2016. The sooner you save, the more time you'll have to gain benefits of tax-deferred growth.
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). 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.
Other ways to speed up your tax deductions include, but are 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
More Tax Planning Information
Review our Tax Return Planning Guide
Claim 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!
Want to claim a dependent or qualify for Head of Household filing status? Play with our FREE Tax Toys & Tools!