April 18th is right around the corner, and yes, I did mean April 18th. The calendar this year finds April 15, the traditional due date for tax returns, falling on a Saturday. This automatically defers the due date until the following Monday. But Monday, April 17 is also Emancipation Day in Washington, D.C., so we get an extra day to file our individual tax returns.
Emancipation Day is one of several celebrations of the abolition of slavery, and very worthy of recognition. However, I find the irony of the Washington, D.C. Emancipation Day overwhelming, as on the next day (official tax return due date for 2017) we are reminded that we are all slaves to the bloated Federal bureaucracy.
But I digress.
We have a few weeks left to see what we can do to get ready, save some money, and to comply with this most burdensome of all Federal Departments. Since paying taxes is mandatory, we should all at least do the best we can for “Number One.” Staying within the law is important, but I do not respect the oft-repeated phrase, “I always leave them something to find.” Simply put, this means, “I overpay my taxes every year.” To which I say, “Don’t!”
The best remaining deduction for 2016 is the Traditional IRA (or other tax-deferred retirement account contribution), which can be completed up to your date of filing. Small business owners can often do even better with a small business retirement plan, several (but not all) of which are able to be funded prior to filing the 2016 return. In all cases, eligibility requirements are complicated, so taxpayers who don’t know the rules should start reading, or consult a qualified tax preparer.
We should also use this opportunity to plan for your 2017 return. Here are some of the best available deductions for the average person, with an eye to the probability of surviving the tax law changes most likely to occur under the new Administration:
- Traditional IRA, 401(k), 403(b), and all similar tax-deferred plans should be maxed out, or at least funded to the ability of the participant to set aside money – most like to be a survivor for 2017 tax returns
- Capital gains and preferred dividends – preferred tax treatment is available for long-term capital gains (assets held for more than 1 year), as well as preferred dividends from assets owned for a pre-determined period, outside a tax-deferred account, also – likely to survive into 2017
- Earned Income Tax Credit – for low-income people, a “refundable tax credit” that pays people more than they paid in, this Reagan-era program will likely survive
- Mortgage Interest Deduction – America’s favorite tax saving is likely to be more restrictive, but hardly anyone will notice any change for 2017
- Charitable Contributions – America’s second-favorite deduction, making both you and your charity happy, will probably survive for 2017
- Child Tax Credit – no politician would dare touch this one, which gives life to the saying, “it’s for the children”
- Property Taxes, along with State and local taxes (including sales tax deductions for people in states with no income tax), may not survive as deductions, but save your receipts anyway until we know
In the I.T. industry over the decades, we have developed the expression “GIGO,” which stands for “garbage in, garbage out.” So it is with your tax returns. You must provide any and all pertinent information to your tax preparer in order to get a successful result.
If you are a taxpayer with even a moderately complex tax situation, and especially if you are an investor, consult your financial advisor about tax planning in an uncertain environment. If your advisor is not helpful, perhaps it would be a good time to seek the help of a fee-only Certified Financial Planner (CFP), such as Van Wie Financial. While most CFP Professionals are not tax preparers, we are trained in tax planning, and work closely with your other tax professionals.
Van Wie Financial is fee-only – for a reason.