The following tax planning strategies through out the year and close to the end of year for consideration:
During the 2016 tax year, taxpayers in the 10% and 15% tax brackets will continue to enjoy no tax on LT capital gains and qualifying dividends. Beginning with the 25% tax bracket gains and dividends are taxed at 15% until income reaches the 39.6% tax bracket which pushes up the specific tax rate on gains and dividends to 20%.
For 2016, personal exemptions and itemized deductions are limited depending on your adjusted gross income. Generally, itemized deductions are reduced 3% of the excess of AGI over $259,400 and $311,300 for single and joint taxpayers, respectively. Medical deductions, investment interest and casualty losses won’t be affected. Likewise, personal exemptions of $4,050 begin to phase out at the same AGI levels previously noted. Personal exemptions are reduced by 2% for each $2,500 of AGI over the thresholds.
Also for 2016, the 0.9% Medicare surtax on high-earners. Single taxpayers will owe the tax once earnings top $200,000 and joint filers top $250,000. The surtax applies to wages and self-employed income. The 3.8% Medicare surtax applies to net investment income including capital gains, interest, dividends, royalties and passive rental income. The tax levy hits single filers with AGI over $200,000 and married couples above $250,000. The marginal rate can be even greater for high income taxpayers who may owe Alternative Minimum Tax (AMT).
There is still special tax rules available for the deduction of certain business vehicles with gross weights greater than 6,000 lbs and trucks. Please contact our office if you are considering purchasing a business vehicle by year-end.
Generally, it is mostly tax favorable to accelerate deductions if possible by prepaying property taxes, donations, and most business expenses before the end of the year. In addtion, it may be advantageous to defer (delay the recognition) income from 2016 to 2017.