Holiday Mix and Mingle * click to enlarge photos

The post Holiday Party and Cooking Demo 2017 appeared first on Financial 1 Tax.

Times have certainly changed!

Today the concept of retirement has taken on a new meaning. The cost of living has become very expensive and those who would like to enjoy their mature years are finding that it is becoming less and less financially feasible. In order to realize their dreams, retirees are finding that simply living off of social security and a savings account is not enough.

Social security, which is typically a component of any retirement plan, was never intended to be the sole source of retirement for anybody. To reach any sort of comfortable retirement income, people today will need quite a bit more than what social security can provide. The Social Security Administration recently stated that 96% of American workers are covered by social security, (including non-working spouses who are also eligible for payments). However, the amount you are eligible for can be different depending on when you start to collect. Even though in most circumstances you cannot collect Social Security until age 62, there is an even higher benefit offered to those who wait until age 70 to start. Although social security should be a part of your retirement planning, for purposes of this article, we want to point out that social security will most often not help satisfy someone’s retirement income needs.

Some people have saved their entire lives with the intent of being able to enjoy the golden years, but when putting together a plan for living comfortably from these savings, they now have to take into consideration many factors, including:

Good Strategy

These are just a few of the complex issues that retirees need to consider. A good strategy for approaching and preparing for retirement is through a well-executed, long-term plan. Sadly, the reality for many people is that their lifetime may have included unexpected situations like an untimely death, a divorce, an unfortunate disability, or any one of a number of unpredictable and unpreventable obstacles that changed or altered even the best of intentions. As a result, many people today find themselves in the twilight of their working years having saved less for their retirement than they anticipated and scrambling to find a way to compensate or make up for the cash they will need to realize the retirement they once desired.

Provisions for Individuals Over 50

Those who are in their 50s and 60s without large retirement accounts may not have the time to receive the full benefits from compounding the returns on their investments. Also in today’s low interest rate environment, many of your safer choices will not grow as fast as they would have when interest rates were higher. Your retirement savings can still have the opportunity to grow by the time you need to access your funds. The tax law provides a few provisions for individuals over 50 that are continuing or even starting to save for their retirement. If you are 50 or older you can put up to $6,500 ($1,000 more than younger savers) in your regular IRA or Roth IRA. If you are over 50 years old you can also add an extra $6,000 to a 401(k) plan (compared to your younger co-workers). IRAs and 401(k) plans provide for tax-deferred growth, while Roth IRAs can offer tax-free growth. These options are always attractive for those still working and over age 50, but there are many restrictions and guidelines on who can participate and to what extent. This is an area where we can help. For clients who are interested in learning how to maximize their retirement savings, we always enjoy the opportunity to discuss their specific situation and plans.

Today, many people are delaying their actual retirement date. Every year you continue to work can help your planning in two ways. First, delaying retirement means there is another year you are working and earning an income and saving for retirement. Second, because you are still working, you may not need to use your retirement savings that year for financial help. Delaying your retirement allows your nest egg to hopefully grow for another year.

For many Americans, retirement today can be broken down into four phases:

1. Pre-retirement;
2. Early retirement;
3. Full retirement; and
4. Final retirement.

Let’s take a brief look at each of these stages.

Pre-retirement Phase

Pre-retirement is that time period when you begin to take a look at slowing down and begin to plan your life after your career. This is the time you should ask yourself how much money you will need and how you can make the most of your retirement. As a starting point, most experts suggest that you will not need your full earnings to carry you through retirement but a high percentage of it. Obviously, the percentage is higher if you earn less, and can be lower if you earn more. Although everyone’s situation is different, one of the keys to success is to consider preparing an active budget of your expected expenses in retirement. You can then review how much you have saved and invested to meet your unique situation.

Remember, most people in retirement pare back certain expenses like commuting costs and clothes that are required for work. However, some incur additional expenses such as health care. It is crucial in this phase that you map out what you want your retirement to look like and how and where you expect to live so that you can begin to plan for life after your career has ended. This time period is also helpful to think about setting some goals you can stick to and monitor your cash flow.

Early Retirement Phase

The next stage is the early stage of retirement. During this phase, many people can still have a lot of energy and enthusiasm and therefore can focus on enjoying physical sports (like golf and tennis) and traveling. During this phase, it is important to have a plan for cash flow. It can be very likely that your expenses will be higher in these early years due to potentially more extensive travel and activities.

It is not unusual today for many individuals in this early stage to work on a part-time basis. In addition to traditional work, many people in this stage also still work on boards of trustees and volunteer at not-for-profit organizations.

The increase in life expectancy can affect your decisions during this stage. Also, many people during this stage need to replace or supplement corporate benefits such as life and health insurance and, if you work part time, possibly disability insurance.

The challenges of this early retirement phase are not just financial. They can also be about filling time. Many retired clients find themselves looking for work often part time, simply out of boredom. Although early retirement may sound appealing, it is important to think through the financial and non-financial implications for making this decision. It is essential that during this period that you hold a full review of your estate plan so any unexpected situations do not interrupt the comfort of you or your loved ones. This is another area where we can offer assistance to clients.

Full Retirement Phase

This next stage is the middle of your retirement cycle. By now, you have hopefully realized your travel dreams and fulfilled many of the goals you had planned for in your retirement.

Although you may be in good health, many people during this phase are more likely to decide to slow down and may possibly find more enjoyment in activities that are less fatiguing and slower paced. The hassles of traveling don’t sound as tolerable. Instead, local events and the pursuit of hobbies that are less physically tasking sound more appealing.

During this phase many people belong to groups or clubs that meet regularly and provide social interaction. Your expenses may actually be lower than in the early retirement phase if your activities (such as traveling) have minimized.

In today’s low interest rate environment, many experts are recommending that withdrawals from retirement plans be more conservative than those taken during periods of higher interest rates. This is why we like to sit with clients to help determine an appropriate withdrawal schedule.

Final Retirement Phase

The final years of retirement are the last stage. This is when you may find yourself battling the physical and mental challenges of old age. During this final phase, some retirees move out of their homes and into assisted care facilities or even nursing homes. Many times medical expenses, including prescription drugs, take up a significant share of your monthly income. You can even become restricted in your activities due to physical limitations.

Conclusion

Regardless of your age or which phase you are in or approaching, here are some important things that you need to constantly review and consider:

1. Realize that your cash flow needs can be different for each phase of retirement.

Your early phase and final phase have the potential to have the most expenses. Expenses can usually be lower in the full or pre-retirement stage.

2. People are living longer.

Better health habits, advances in medicine, and many new drugs have extended people’s lives longer than prior generations. It is imperative to monitor and review your investment choices on a regular basis to give yourself the best possibility of meeting the cash flow needs you will require throughout each phase of retirement.

3. It is imperative to periodically rebalance your investment portfolios to reflect the various changing priorities and living patterns as you go through each of these retirement stages.

You should systematically revisit how you can adjust your portfolio based upon your actual life and health changes, goals, needs, objectives, and risk tolerances.

4. It is essential to review your needs for long-term care and other costs (like medical and burial expenses) before and during retirement.

5. It is crucial to constantly monitor your cash distributions from your retirement savings.

We have experienced a significant decline in interest rates over the last decade and that can affect your portfolio. In this low interest rate environment, it is even more essential that you have a strategy for taking distributions from your portfolio. In the past, a larger distribution rate might have been acceptable, however, with today’s low interest rates it is imperative to make sure that your withdrawal rates are reasonable and will be sustainable over the long-term.

The bottom line is that throughout each stage of retirement it is wise to make sure that you plan and monitor. Remember, the only thing that is constant is change!

Our role is to help and assist you through each stage of your retirement. We take great pride and satisfaction in reviewing each of our client’s individual situations and needs. Our goal is to fully understand and review your retirement and estate planning needs. Please call us at 410-908-9293 if you have any questions or need any assistance and we will be happy to help you.

Help us grow!

This year, one of our goals is to offer our services to several other people just like you!

Many of our best relationships have come from introductions from our clients.

Do you know someone who could benefit from our services?

We would be honored if you would:

• Add a name to our mailing list,
• Bring a guest to a workshop,
• Have someone come in for a complimentary financial checkup.

Please call Financial 1 at 410-908-9293 and we would be happy to assist you!

Learn how to turn your savings into lifetime, infaltion-adjusted income.

This article is for informational purposes only. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer or financial professional. A Roth IRA distribution is qualified if you’ve had the account for at least five years and/or the distribution is made after you’ve reached age 59 ½. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Please note that rebalancing investments may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability.

The post The Four Phases of Retirement appeared first on Financial 1 Tax.

One of our major goals is to help our clients identify opportunities that coordinate tax reduction with their investment portfolios. In order to achieve this goal, we stay current on ever-changing tax reduction strategies. On November 8, voters elected Donald Trump to serve as the 45th President of the United States. Comprehensive tax reform was one of his priorities, however, his ideas and proposal will not affect 2016 tax returns. This special report covers the details of numerous year-end tax strategies for 2016.

Remember— every situation is different and not all strategies will be appropriate for you. Please discuss all tax strategies with your tax preparer prior to making any final decisions.

Income Tax Rates for 2016

Tax brackets changed slightly for 2016. For example, for the 2015 tax year, the top of the 15% federal income tax bracket for married couples filing jointly was $74,900. In 2016, that figure increased to $75,300. Below is a table of federal income tax rates for 2016.

Click table to enlarge.

Year End Tax Planning For 2016

As you read through this report you will find some key aspects of the current 2016 tax laws and how they may apply to your situation. The current Presidential election of Donald Trump brings forward some proposals that were announced on the campaign trail, but these are far from being law and will not affect 2016 tax returns. Late-breaking rules and decisions in Washington, D.C. always make it difficult to plan ahead and this year investors must still wait to see if there are any final opportunities or challenges.

The Protecting Americans from Tax Hikes Act (PATH Act) passed in late 2015 changed, revised and also made permanent some tax breaks that were previously in need of extension. Despite all the uncertainty surrounding future tax rules, there are many year-end tax moves that focus on income and expenses you can make to lessen your tax liability. To the extent that income or expenses can be moved or recognized in either 2016 or 2017 can make a difference for many investors. Year-end tax planning is often about determining the best year to earn additional income or to incur more tax deductions. Now is the time to focus on how to optimize your situation between these two years.

The goal of this report is to share strategies that could be effective if considered and implemented before year-end. Choosing the appropriate strategies will depend on your income as well as a number of other personal circumstances. As with all tax strategies, it is always in your best interest to discuss your personal situation with your tax preparer before making any moves or final decisions.

Things To Review Before Year-end

While everyone’s situation is unique, please begin your final year-end planning now!

Consider All of Your Retirement Savings Options for 2016

If you have earned income or are working, retirement savers should consider contributing to retirement plans. This is an ideal time to make sure you maximize your intended use of retirement plans for 2016 and start thinking about your strategy for 2017. For many investors, retirement contributions represent one of the smarter tax moves that they can make. Here are some retirement plan highlights:

Higher 401(k) contribution limits. The elective deferral (contribution) limit for employees under the age of 50 who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $18,000. The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is an additional $6,000 ($24,000 total). As a reminder, these contributions must be made in 2016.

IRA contribution limits unchanged. The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000 (for a total of $6,500). IRA contributions can be made all the way up to the April 17, 2017 filling deadline (the 15th is on a Saturday).

Higher IRA income limits. The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) of $61,000 and $71,000 for 2016. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is 98,000 to $118,000 for 2016. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out in 2016 as the couple’s income reaches $184,000 and completely at $194,000 for 2016. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is $0 to $10,000 for 2016. Please keep in mind, if your earned income is less than your eligible contribution amount, your maximum contribution amount equals your income.

Increased Roth IRA income cutoffs. The AGI phase-out range for taxpayers making contributions to a Roth IRA is $184,000 to $194,000 for married couples filing jointly in 2016. For singles and heads of household, the income phase-out range is $117,000 to $132,000 in 2016. For a married individual filing a separate return, the phase-out range is $0 to $10,000 for 2016. Please keep in mind, if your earned income is less than your eligible contribution amount, your maximum contribution amount equals your income.

Larger saver’s credit threshold. The AGI limit for the saver’s credit (also known as the Retirement Savings Contribution Credit) for low- and moderate-income workers is $61,500 for married couples filing jointly in 2016, $46,125 for heads of household, $30,750 for all other filers.

Be careful of the IRA one rollover rule. IRA investors were always limited to one rollover per year, per IRA. Investors are still limited to make only one rollover from all of their IRAs to another in any 12-month period. A second IRA-to-IRA rollover in a single year could result in income tax becoming due on the rollover, a 10 percent early withdrawal penalty, and a 6 percent per year excess contributions tax as long as that rollover remains in the IRA. Individuals can only make one IRA rollover during any one-year period, but there is no limit on trustee-to-trustee transfers. Multiple trustee-to-trustee transfers between IRAs and conversions from traditional IRAs to Roth IRAs are allowed in the same year. If you are rolling over an IRA or have any questions on this, please call us.

Roth IRA Conversions

Some IRA owners are considering converting part or all of their traditional IRAs to a Roth IRA. This is never a simple and easy decision. Roth IRA conversions can be helpful, but they can also create immediate tax consequences and can bring additional rules and potential penalties. It is best to run the numbers with a qualified professional and calculate the most appropriate strategy for your situation. Call us if you would like to review your Roth IRA conversion options.

Capital Gains and Losses

Looking at your investment portfolio can reveal a number of different tax saving opportunities. Start by reviewing the various sales you have realized so far this year on stocks, bonds and other investments. Then review what’s left and determine whether these investments have an unrealized gain or loss. (Unrealized means you still own the investment and haven’t yet sold it, versus realized, which means you’ve actually sold the investment.)

Know your basis. In order to determine if you have unrealized gains or losses, you must know the tax basis of your investments, which is usually the cost of the investment when you bought it. However, it gets trickier with investments that allow you to reinvest your dividends and/or capital gain distributions. We will be glad to help you calculate your cost basis.

Consider loss harvesting. If your capital gains are larger than your losses, you might want to do some “loss harvesting.” This means selling certain investments that will generate a loss. You can use an unlimited amount of capital losses to offset capital gains. However, you are limited to only $3,000 if married filing jointly ($1,500 if married filing separately) of net capital losses that can offset other income, such as wages, interest and dividends. Any remaining unused capital losses can be carried forward into future years indefinitely.

Be aware of the “wash sale” rule. If you sell an investment at a loss and then buy it right back, the IRS disallows the deduction. The “wash sale” rule says you must wait at least 30 days before buying back the same security in order to be able to claim the original loss as a deduction. The deduction is also disallowed if you bought the same security within 30 days before the sale. However, while you cannot immediately buy a substantially identical security to replace the one you sold, you can buy a similar security—perhaps a different stock in the same sector. This strategy allows you to maintain your general market position while utilizing a tax break.

Sell worthless investments. If you own an investment that you believe is worthless, ask your tax preparer if you can sell it to someone other than a related party for a minimal amount, say $1, to show that it is, in fact, worthless. The IRS often disallows a loss of 100% because they will usually argue that the investment has to have at least some value.

Always double check brokerage firm reports. If you sold a stock in 2016, the brokerage firm reports the basis on an IRS Form 1099-B in early 2017. Unfortunately, sometimes there could be problems when reporting your information, so we suggest you double-check these numbers to make sure that the basis is calculated correctly and does not result in a higher amount of tax than you need to pay.

Zero Percent Tax on Long-term Capital Gains

You may qualify for a 0% capital gains tax rate for some or all of your long-term capital gains realized in 2016.

The strategy is to figure out how much long-term capital gain you might be able to recognize to take advantage of this tax break. The 0% long-term capital gains tax rate is for taxpayers who end up in the 10% or 15% ordinary income tax brackets, which is up to $37,650 for single filers and $75,300 for joint filers. If your taxable income goes above this threshold, then any excess long-term capital gains will be taxed at a 15% capital gains tax rate and/or 20% capital gains tax rate, depending on how high your taxable income is for the year.

NOTE: The 0%, 15% and 20% long-term capital gains tax rates only apply to “capital assets” (such as marketable securities) held longer than one year. Anything held one year or less is considered a “short-term capital gain” and is taxed at ordinary income tax rates.

If you are eligible for the 0% capital gains tax rate, it might be a good time to consider selling some appreciated investments to take advantage of it. Sell just enough so your gain pushes your income to the top of the 15% tax bracket, then buy new shares in the same company. The “wash sale” requirement to wait 30 days does not apply for gains. With “gains harvesting,” you can actually sell the stock and buy it back on the same day. Of course, there will be transaction costs such as commissions and other brokerage fees. At the end of the day you will have the same number of shares, but with a higher cost basis. Please remember, you must also review your state income tax rules to determine whether or not these gains will be tax-free at the state level.

This strategy might be helpful if in 2016 you are temporarily unemployed, are someone whose income varies from year to year or are between the ages of 55 and 70 and may soon be transitioning into retirement or already retired.

If you’re ineligible for the 0% capital gains tax rate but you have adult children in the 0% bracket, consider gifting appreciated stock to them. Your adult children will pay a lot less in capital gains tax than if you sold the stock yourself and gifted the cash to them (make sure the Kiddie tax doesn’t apply—e.g. students up to age 23).

Medicare Tax

In 2016, a 3.8% Medicare surtax on “net investment income” remains in place for wealthy taxpayers. The 3.8% Medicare surtax is on top of ordinary income and capital gains taxes, meaning long-term capital gains and qualified dividends may be subject to taxes as high as 23.8%, while short-term capital gains and other investment income (such as interest income) could be taxed as high as 43.4%!

The Medicare surtax is imposed only on “net investment income” and only to the extent that total “Modified Adjusted Gross Income” (“MAGI”) exceeds $200,000 for single individuals and $250,000 for taxpayers filing joint returns. Not all income is subject to this Medicare Tax. For example, interest and dividends are included and wages are not. Check with your tax preparer if you are subject to this tax and we can discuss future planning.

Taxation of Social Security Income

Social Security income may be taxable, depending on the amount and type of other income a taxpayer receives. If a taxpayer only receives Social Security income, this income is generally not taxable (and it is possible that the taxpayer might not even need to file a federal income tax return).

If a taxpayer receives other income in addition to Social Security income, then up to 85% of the Social Security income could be taxable. There is a “floor” ($32,000 married filing jointly; $0 married filing separately; $25,000 all other taxpayers) whereby a portion of Social Security benefits become taxable and the 85% inclusion kicks in once provisional income goes above a “ceiling” ($44,000 married filing jointly; $0 married filing separately; $34,000 all other taxpayers). For married taxpayers filing a joint return and for married persons filing separately who do not live apart from their spouses for the whole year, the “provisional income” threshold is $0. A complicated formula is necessary to determine the amount of Social Security income that is subject to income tax. (We suggest using the worksheet in IRS Publication 915 to make this determination.)

Finally, it is important to note that Social Security income is included in the calculation of “Modified Adjusted Gross Income” (“MAGI”) for purposes of calculating the 3.8% Medicare surtax on “net investment income” (as discussed earlier). Therefore, taxpayers having significant net investment income might have more reason to defer Social Security benefits.

Itemized Deductions & Exemptions

Taxpayers are entitled to take either a standard deduction or itemize their deductions on IRS Form 1040, Schedule A. Itemized deductions include, but are not limited to, mortgage interest, certain types of taxes, charitable contributions and medical expenses. Unfortunately, itemized deductions are subject to several limitations. For example, in 2016 medical expenses are deductible only to the extent that they exceed 10% of AGI this year. However, if you or your spouse are over 65, the deduction limit is still at 7.5% until December 31, 2016.

Consider “bunching” your deductions. Many taxpayers don’t have enough itemized deductions to reduce their taxes more than if they take the standard deduction. If you find you often miss the threshold by only a small amount per year, it may be best to “bunch” your deductions every other year, taking a standard deduction in the alternate years. The standard deduction for 2016 is $6,300 for singles, $6,300 for married persons filing separate returns, $9,300 for heads of households and $12,600 for married couples filing jointly.

Charitable Giving

This is a great time of the year to clean out your garage and give your items to charity. Please remember that you can only write off these donations to a charitable organization if you itemize your deductions. Sometimes your donations can be difficult to value. You can find estimated values for your donated clothing at http://turbotax.intuit.com/personal-taxes/itsdeductible/.

Send cash donations to your favorite charity by December 31, 2016, and be sure to hold on to your cancelled check or credit card receipt as proof of your donation. If you contribute $250 or more, you also need a written acknowledgement from the charity.

If you plan to make a significant gift to charity this year, consider gifting appreciated stocks or other investments that you have owned for more than one year. Doing so boosts the savings on your tax returns. 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, and therefore you avoid having to pay taxes on the profit!

Do not donate investments that have lost value. It is best to sell the asset with the loss first and then donate the proceeds, allowing you to take both the charitable contribution deduction and the capital loss. Also remember, if you give appreciated property to charity, the unrealized gain must be long-term capital gain in order for the entire fair market value (FMV) to be deductible. (The amount of the charitable deduction must be reduced by any unrealized ordinary income, depreciation recapture and/or short-term gain.)

The laws allowing taxpayers age 70½ and older to transfer up to $100,000 directly from their IRA over to a charity, satisfying all or part of the required minimum distribution (RMD) were made permanent in 2015. If you want to do this please make sure it is done before year end.

Other Year-End Tax Strategies and Ideas

Make use of the annual gift tax exclusion. You may gift up to $14,000 tax-free to each person in 2016. These “annual exclusion gifts” do not reduce your lifetime gift tax exemption. (NOTE: The annual exclusion gift is doubled to $28,000 per recipient for joint gifts made by married couples or when one spouse consents to a gift made by the other spouse.)

Help someone with medical or education expenses. There are opportunities to give unlimited tax-free gifts when you pay the provider of the services directly. The medical expenses must meet the definition of deductible medical expenses. Qualified education expenses are tuition, books, fees, and related expenses but not room and board. You can find the detail qualifications in IRS Publications 950 and the instructions for IRS Form 709, which are available for free at www.irs.gov.

Contribute to a 529 plan on behalf of a beneficiary. This qualifies for the annual gift-tax exclusion. Withdrawals (including earnings) used for qualified education expenses (tuition, books and computers) are income tax free. The tax law even allows you to give the equivalent of five years’ worth of contributions up front with no gift-tax consequences. Non-qualifying distribution earnings are taxable and subject to a 10% tax penalty.

Make gifts to trusts. These gifts often qualify for the annual exclusion ($14,000 in 2016) if the gift is direct and immediate. A gift that meets all the requirements removes the property from your estate. The annual exclusion gift can be contributed for each beneficiary of a trust. We are happy to review the details with your estate planning attorney.

If possible, prepare a tax projection for 2016 and 2017 to determine if you will have a change in your tax situation. Then consider the following strategies if they apply to your situation.

Click table to enlarge.

It is important to note that some itemized deductions (such as state income taxes, real estate taxes and miscellaneous itemized deductions) are not allowed when computing the “Alternative Minimum Tax” (“AMT”). If you are subject to the AMT, it is often best to delay payment on the disallowed deductions and push them off until 2017 or later tax years (when AMT is no longer an issue). It is always possible you might be able to use the deductions next year. Therefore, we suggest that you talk with your tax preparer about AMT prior to using any of the deduction and exemption strategies we have mentioned.

Popular PATH Act Permanent “Extenders”

American Opportunity Tax Credit. The PATH Act made the American Opportunity Tax Credit (AOTC) permanent. The AOTC is equal to 100% of the first $2,000 of qualified tuition and related expenses, plus 25% of the next $2,000 of qualified tuition and related expenses.

Teachers’ classroom expense deductions. The PATH Act permanently extended the above-the-line deductions of up to $250 for elementary and secondary school administrators’ and teachers’ classroom expenses. Eligible educators (such as teachers, administrators and others) may claim this above-the-line deduction in lieu of a miscellaneous itemized deduction.
State and local sales tax deduction. The PATH Act made permanent the itemized deduction for states and local general sales taxes. That deduction may be taken in lieu of state and local income taxes when itemizing deductions.

PATH Act “Extenders” Expiring at the End of 2016

Tuition for fee deductions. The PATH Act extended the above-the-line deduction for qualified tuition and related expenses for two years, for expenses paid before January 1, 2017. The maximum amount of the tuition and fee deductions is $4,000 for an individual whose AGI for the tax year does not exceed $65,000 ($130,000 in the case of a joint return) or $2,000 for other individuals whose AGI does not exceed $80,000 ($160,000 in the case of a joint return).

Mortgage insurance premium deductions. The PATH Act extended the treatment of qualified mortgage insurance premiums as qualified residence interest proactively for two years, to apply to amounts paid or accrue through 2016 and not properly allocable to a period after December 31, 2016.

President-elect Trump’s Tax Positions

While campaigning for the position of President, Donald Trump shared some views of his tax position. President-elect Trump stated that comprehensive tax reform to significantly lower individual and business tax rates was one of his top priorities. According to CCH’s Tax Briefing, his proposals included a simpler tax system with 3 tax brackets: 12, 25 and 33%. He also shared that he would recommend no change in capital gains rates and a repeal of the 3.8% Medicare Tax. Another item discussed was capping deductions at $100,000 for single filers and $200,000 for joint returns. Many experts feel that tax reform will advance in 2017. Remember, ideas and proposals are far from actual laws, but with a Republican Senate and House, change is considered possible and as things become finalized we will keep you updated.

Conclusion

One of our primary goals is to keep clients aware of tax law changes and updates. This report is not a substitute for using a tax professional. Please note that many states do not follow the same rules and computations as the federal income tax rules. Make sure you check with your tax preparer to see what tax rates and rules apply for your particular state.

Two life events that could affect your tax situation are marriage and retirement. Marital status (single, married or divorced) for the entire tax year is determined on December 31st. Because the income tax brackets vary depending upon filing status, a marriage penalty or a marriage benefit may result for any particular couple. Retiring taxpayers may want to take a look at a number of different provisions at year-end in anticipation of retiring, at the point of retirement, or after retirement. Many of these provisions have opportunities and deadlines keyed to the tax year. One thing to watch closely by year-end is the Minimum Distribution Requirements. Most retirement arrangements (other than Roth IRAs) require that participants begin to take annual payments of benefits in the year they turn age 70½. While distributions generally must be made at the end of the calendar year, distributions for the first year can be delayed until April 1 of the succeeding year. If you have questions about your Required Minimum Distributions, please call us.

There are many other additional tax reduction strategies that will vary depending on your financial picture. We encourage all of our clients and prospects to come in so that we can review your particular situation and hopefully take advantage of those tax rules that apply to you.

Financial 1 WMG 2016 Client Advocate Program

If you are currently not a client of Financial 1 Wealth Management Group, we would like to offer you a complimentary, one- hour, consultation with one of our professionals. Please call, 410.908.9293.

As always, we appreciate the opportunity to assist you in addressing your financial matters and look forward to seeing you soon!

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice.  ­We suggest that you discuss your specific tax issues with a qualified tax advisor.

Financial 1 Wealth Management Group
10211 Wincopin Circle
Suite 620
Columbia, MD 21044-3431

This article is for informational purposes only. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer or financial professional. A Roth IRA distribution is qualified if you’ve had the account for at least five years and/or the distribution is made after you’ve reached age 59 ½. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Please note that rebalancing investments may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability.

The post Year-End Tax Moves for 2016 appeared first on Financial 1 Tax.