December 7, 2016

Year End Tax Planning Tips for Procrastinators

There's still time to make smart tax planning moves to reduce your 2016 tax bill, but you need to act now!
Ann Brownholtz, CPA

As we approach the end of 2016, there is still time to make some effective tax-planning decisions that can reduce your tax bill for the year. Here are some ideas to consider in the next few weeks.

1. Consider making charitable contributions prior to December 31

It may be better from a tax standpoint to donate appreciated capital gain property (stock) to your favorite charity instead of writing a check. If you are over 70 ½, and therefore required to take a required minimum distribution from your traditional IRA, you have the option of making a QRD – qualified charitable distribution – and having part of your distribution contributed to a charitable organization. This can be helpful if you are trying to reduce your adjusted gross income for any reason. 

2. Maximize your 2016 retirement contributions

If you are employed, consider having additional amounts deferred from your paycheck towards the end of the year in order to fully maximize your allowable 401k contribution ($18,000, in most cases, and an additional $6,000, if you are age 50 or older).

3. Harvest capital losses to offset gains

Check your portfolio, or consult your investment advisor, to evaluate your holdings for capital gains realized in 2016. Consider selling other investments to generate losses to offset your capital gains dollar-for-dollar. Remember unused capital losses can be carried forward to offset gains in subsequent years.

4. Make large equipment purchases for your business prior to December 31

If you purchase and place in service a piece of equipment for your business, you can deduct the full purchase price, up to $500,000, rather than capitalizing and deducting the cost over a period of years, as long as the cost does not create or increase a net overall loss for your business.

5. Reduce your taxable estate

High-net-worth taxpayers may want to consider gifting up to $14,000 to multiple family members or other individuals before year-end to reduce their taxable estate. Married couples may gift up to $28,000 to each individual if they elect gift-splitting.

6. Address any required estimated tax payments 

Ensure that you are safe from underpayment of estimated tax penalties. Alternately, you may be able to increase your withholding, if needed, to make up any shortfall.

Bonus advice

In addition to the year-end planning ideas, it’s also important to keep in mind the growing identity theft problem that seems to be affecting more and more taxpayers. Remember, the IRS will generally never contact you via email or phone. Any unsolicited correspondence from taxing authorities should be considered suspect. Always check with your tax advisor before responding to any communication from the IRS or the state tax departments.

Keep in mind as we approach the end of 2016 that scrutiny regarding compliance issues with foreign account reporting continues. Taxpayers with foreign accounts (or signature authority over those accounts) are subject to strict reporting requirements. Consequences of not complying with the disclosure requirements can be steep and are being strictly enforced. Again, a call to your tax advisor now can eliminate headaches down the road.

Planning ahead is a great strategy to help you minimize your tax bill, as well as position yourself for greater financial success in the future.


Shawn: Now you hear all kinds of deals about leasing cars, how can you negotiate a better deal if you want to lease?

Nina: Okay, well many people don't realize that they can actually negotiate the sticker price on a leased car in the same way that you would do that if you're buying a car. And since when you lease -- when you're, you know, your lease payments basically cover the depreciation, the difference between the sales price and the residual value. So it's definitely in your best interest to try to reduce that sales price as much as possible because then you'll pay you know, smaller dollars over the life of the lease. Make sure you pay attention to the down payment at the lease signing. And so here's an example, you might see an ad that says you know, lease payment is only 1.99 a month and that sounds like a great deal for thirty six months. The catch is, is that it might require a $3,600 down payment. So, if you amortize the down payment, then actually that 1.99 special, becomes 2.99. So, you really have to kind of look at total costs. 

And then lastly, dealerships use the term, money or lease factor, when they're calculating your financing costs and a lease factor is not the same as an interest rate. So, you have to make sure the dealer converts that lease factor into a comparable interest rate so you know what your financing charges are. 

Shawn: At the end of the day, does one method wind up being more expensive more often than the other, or can we tell that?

Nina: You know what, it really depends on how long, if you're going to hold the car for a long time, you're better off buying. But if you know, and if you're not, if you just really enjoy driving and you want to have a new car, then go ahead and lease. I mean, there's pros and cons to both, to be honest with you, it's not one size fits all.

Shawn: Alright Nina, great. Happy Thanksgiving to you. Alright, Nina Mitchell is with The Colony Group, for more go to and search Her Wealth.

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Ann Brownholtz, CPA

Ann is known as the go-to CPA for preparing the most difficult and complex tax returns. She is the consummate tax professional—an expert on the tax code and all its ramifications for individuals, trusts, real estate and all other partnerships.