November 14, 2016
Take steps to plan for tax season — before year-end.
With 2016 coming to a close, there’s no better time than now to take steps that could reduce your tax obligations next April. U.S. Bank professionals suggest the following tax-planning ideas, which you may want to consider and discuss with your tax and legal advisors.
Manage Tax Brackets by Deferring Income
Deferring or reducing earned income can help you avoid elevating into a steeper income-tax bracket. For 2016 income taxes payable in 2017, the top tax bracket for married couples filing jointly is 39.6 percent, which applies if your combined income is above $466,950.
Keep in mind that tax brackets are graduated, so only the income that exceeds the threshold for the next bracket is taxed at the higher rate.
To reduce taxable income for 2016, ask your advisors whether these strategies might apply to your situation:
• Maximize your pretax contribution to a health savings account. For 2016, a family may contribute up to $6,750. Individuals 55 or older may contribute an additional $1,000 as a catch-up amount.
A health savings account is used with a high-deductible healthcare plan to help save for qualified medical expenses. Any amount not spent before the account holder’s death can transfer to a spouse on a tax-free basis, or it may transfer to another named beneficiary as estate income.
• Make a donation to charity from your IRA. Individuals 701⁄2 or older are required to take a minimum distribution from their individual retirement accounts (IRAs). That distribution is taxed as income.
To avoid including these distributions in taxable income, individuals may instead give up to $100,000, tax-free, directly from an IRA account to a qualified charity. Organizations that qualify for this type of donation include educational institutions, hospitals and other tax-exempt nonprofits considered “broadly supported.”