Be Prepared: Smart Tax-Planning Strategies for 2017

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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.” 

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November 14, 2016

In past years, this minimum distribution provision was periodically scheduled to expire, only to be extended numerous times by Congress.


In a number of these instances, the extension occurred late in the year, which made it challenging for taxpayers to address their tax planning. In late 2015, the provision became a permanent part of the law. As a result, planning can now be done with more certainty.

Avoid the Alternative Minimum Tax

Congress enacted the alternative minimum tax (AMT) to prevent high-income taxpayers from using loopholes to reduce their tax obligations. The AMT system is a parallel method of calculating your tax liability. It expands the amount of taxable income by adding income items that are tax-free and removing or reducing many deductions allowed under the regular tax system. About 2.5 percent of U.S. households pay the AMT rate of 26 or 28 percent.


For 2016, the IRS has increased the AMT exemption, which is the amount taxpayers can deduct from income calculations when determining their potential AMT liability.

For 2016 taxes, the AMT exemption amount rises to $53,900 for individuals and $83,800 for married couples filing jointly. However, as David Rau, Trust Tax Manager for U.S. Bank Wealth Management, explains, “As your AMT income goes up, it can phase out more of your exemption.” For individuals, the 2016 exemption begins to phase out at $119,700; for married couples filing jointly, it begins at $159,700.


Rau suggests examining your 2015 tax return to determine how close you were to paying the AMT and reviewing your 2016 tax for items that may impact it.

If you have exercised or plan to exercise incentive stock options in 2016, consult your tax advisor to learn how the timing of the sale of those options could affect your AMT liability.

If you paid the AMT on your 2015 tax return and are not subject to the AMT for 2016, you may be able to claim a tax credit toward 2016 taxes for certain items that are considered deferral items.

Respond to Life Changes

Before the end of the year, review your account beneficiaries and trust agreements, suggests Kenneth Cameranesi, CEO of U.S. Bancorp Investments, Inc.

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If you were married during the year or welcomed a new grandchild, for example, you may need to update documents. Consider whether you want to add or remove anyone from your trust agreements. In addition, double-check that basic information such as Social Security numbers and addresses are correct and up to date.

Also, Cameranesi recommends letting your advisors know if you experienced a different or unique circumstance in 2016. For example, the addition of any specialty assets or investments, such as real estate, limited partnerships or farmland, could affect your tax obligations.

Be Prepared for Revisions

In general, there are no significant changes to the law anticipated for 2016. Though major changes are not likely before year-end, taxpayers and their advisors should continue to monitor this.

As 2017 progresses under a new president and Congress, U.S. Bank recommends keeping in touch with your advisors concerning potential new laws or other changes that could affect future tax bills.



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