13 Mar 2016 Income Changes & How It Impacts Your Income Tax
If your income will be higher in 2016 than in 2017 –
With improvements in the economy in West Michigan, you may be looking at significant income growth over that of previous years. If 2016 will be a higher income year, you may benefit by deferring income into 2017. This can be done by:
- Deferring, if possible, any bonus into 2017. Or, if allowed, request that any year-end bonus be added to your employer-sponsored retirement plan, provided you have not already made the maximum contribution.
- If you are self-employed and on the cash basis, delay year-end billing to clients so that payments will not be received until 2017.
- If you sold property at a gain in 2016, consider selling stock or property with built-in losses to offset these gains. You should consult your financial advisor to determine if this strategy makes sense for you.
- If you itemize your deductions, consider paying your winter property taxes before December 31, 2016. (Check with us first, if you are or may be subject to the Alternative Minimum Tax.)
- If you itemize your deductions and make quarterly estimated payments to state or city, consider paying these before December 31st. Again, Alternative Minimum Tax may apply.
- If you itemize, consider making any significant charitable contributions before the end of 2016.
- If you have a high deductible health insurance plan, consider opening a Health Savings Account. Contributions to these accounts are tax-deductible (up to the maximum allowed for single and family plans) and the accounts are available for use in future years for qualified medical expenses.
If your income will be higher in 2017 than in 2016 –
While the future may be hard to predict, there are times when you know that your income will be higher in the next year. If this will be the case for you:
- Request that any bonus be paid to you before the end of 2016.
- If you are self-employed, issue bills and attempt collection before the end of 2016.
- If your retirement strategy includes converting a traditional IRA to a Roth IRA, make the conversion in 2016.
- If you itemize, delay payment of property or estimated taxes to the due dates, which are usually in January or February of 2017.
- If you itemize, consider making significant contributions after January 1, 2017.