As we settle into the new year and resolutions roll around once again, there’s a good chance that “figure out my finances” makes its way back to the top of the list. Something that you could consider doing differently this year is proactive tax planning instead of reactive tax planning. Here are four ways you could get ahead of your taxes in 2017:
1. Take the Surprise Out of Taxes
If you have a close estimate of the income you will receive in 2017, print a two-page 1040 form and start working through a very basic tax calculation. You can print other forms as needed depending on the complexity of your tax return. Estimate income and deductions to the best of your ability. Compare the estimated Federal tax liability with your current Federal withholding to determine if you are over- or under-withholding, and make proactive adjustments at the beginning of the year. We suggest the same exercise with your state tax forms. Note: Although the 2017 1040 is not yet available, the 2016 1040 will give you a useable guideline.
2. IRA Contributions
Just a reminder that you could potentially make 2016 contributions to an IRA, Roth IRA, or SEP IRA up until April 18, 2017 (in accordance with IRS rules). Please note that contributions to a SEP IRA could be delayed to the end of the extension period if you obtain an extension for filing your tax return. These contributions may help reduce your tax liability and increase your retirement savings.
3. ABLE Accounts
You may be familiar with 529 plans, but are you also familiar with 529A plans? The Achieving a Better Life Experience (ABLE) Act was passed in 2014, allowing families to save money for loved ones with disabilities in a tax-deferred 529A account without having to give up eligibility for public benefits, as long as the funds are spent toward qualified disability expenses. The first $100,000 saved in this type of account is exempt from Supplemental Security Income (SSI) limits, and 529 funds may be able to roll over into 529A accounts. Note: The Colorado ABLE program is under development and the goal is to open for enrollments in 2017.
4. Charitable Distributions from IRA’s
If you are over age 70 ½ and therefore subject to Required Minimum Distributions (RMD) from your qualified retirement accounts AND you are making annual charitable contributions to a favorite charity, you may want to consider marrying the two ideas. Congress made the law to exclude up to $100,000 of your RMD permanent if the funds are made payable directly to a qualified public charity.
We suggest taking proactive steps in “figuring out your finances” by coordinating your tax planning with your financial planning in the beginning of 2017. Please call Sharkey, Howes & Javer at 303-639-5100 to schedule a review meeting or complimentary consultation. Happy New Year!