The old adage of accelerating deductions and deferring income may mean much more this year with Donald Trump’s campaign promise to decrease taxes. President-elect Trump’s tax plan includes three income tax brackets for both individuals and those married filing jointly. The plan also aims to retain the existing capital gains rate structure and repeal the 3.8 % Obamacare tax on net investment income and the alternative minimum tax. Furthermore, the standard deduction could significantly increase from $12,600 for couples to $30,000 while single filers could see a standard deduction of $15,000, up from $6,300. For businesses, Trump’s plan proposes lowering the tax rate to 15% and may provide a one-time tax rate of 10% for the repatriation of corporate profits held offshore.
However, until these proposed changes become law, taxpayers may want to take advantage of several laws as they are now. At end of 2015, the Protecting Americans from Tax Hikes Act made several provisions permanent—until tax laws change, of course. With a little more than a month left in 2016, there are some moves that can help improve your tax situation for the year.
Personal income taxpayers can make several moves that will lower their adjusted gross income (AGI). With the tax on net investment income for high-income earners and the additional Medicare surtax on wages more than $250,000 for joint filers still in place for 2016, deferring income with pre-tax retirement savings or postponing bonus payments until 2017 can help you in more ways than one. A lower AGI not only reduces tax liability, but can determine eligibility or phase-out levels for many deductions.
Seniors may want to consider charitable distributions from their IRAs or donating appreciated stock. Both individuals and families may be able to take advantage of the American Opportunity Tax Credit or the Tuition and Fees deduction if they paid higher education costs during the year. Additionally, with the market up, taxpayers may want to coordinate with their tax and financial advisers to take advantage of any losses that have been carried forward by sheltering capital gains.
Businesses may want to take advantage of the generous Section 179 deduction, which allows businesses to write off up to $500,000 on new and used business equipment purchases put into service by Dec. 31st. The spending cap on business equipment phases out when total purchases are more than $2 million. Furthermore, businesses can take an additional 50% bonus depreciation on new equipment after the Section 179 spending cap is reached.
Several tax law changes became effective in 2016, including the advancement of several deadlines. Form W-2 and 1099-MISC are now due to the government at the end of January, a month earlier than before. Calendar-year partnership and S-corporation returns are now due by March 15th and C-corporation returns are due April 15th.
This overview barely scratches the surface of the amount of tax laws and provisions that apply for 2016. Because of the complexity of our tax system, it is in your best interest to work closely with a tax adviser or C.P.A. If you have questions regarding how you can change your tax situation before year-end, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166.
Disclosures: This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
