When it comes to reducing your tax bill, planning ahead is the key. Here are a few 2017 tax moves many of us can take advantage of right now.
1. Max Your Contributions To A Tax-Advantaged Retirement Plan Or Health Savings Account (HSA)
Workplace Retirement Plans
When it comes to your 401(k), 403(b) or similar workplace retirement plan, pretax contributions could reduce your taxes by the amount of your total contribution for the year multiplied by your marginal tax rate. If you are in the 28% tax bracket for example, you could save $280 in current-year federal taxes for every $1,000 you contribute. The deadline for 2017 workplace retirement plan contributions is December 29, 2017. So now is the time to contact your employer to bump up your contributions for this year. The maximum you can contribute to a 401(k) for 2017 is $18,000. If you’re age 50 or older, you can contribute an extra $6,000, for a maximum contribution of $24,000.
Health Savings Account (HSA)
If you are enrolled in a high-deductible health plan, another option for reducing taxable income is by contributing pretax dollars to a health savings account. An HSA has a triple tax benefit (1) your contributions are made with pretax dollars so you reduce your federally taxable income, (2) earnings are federal and potentially state-tax free (3) as are withdrawals used to pay for HSA-qualified medical expenses. The maximum contribution is $3,400 for an individual and $6,750 for a family, plus an extra $1,000 if you are age 55 or older. And there are no income restrictions. The deadline to get credit for 2017 is April 17, 2018.
IRA / Simplified Employee Pension (SEP) IRA
A traditional IRA and SEP IRA offer potential tax breaks similar to a those of a 401(k). The maximum IRA contribution for this year is $5,500 for eligible taxpayers under age 50, and $6,500 for those 50 and older. (Income restrictions apply) SEP contributions by self-employed individuals are limited to $54,000 or 25% of eligible income, whichever is less. The deadline for 2017 tax deductible IRA contirubitons is April 17, 2018.
2. Charitable Giving
Charitable giving can potentially be a great way to lower taxes, while also contributing to worthy causes. But for your contribution to have a meaningful effect on your taxes, you must itemize deductions on your tax return. So make sure your itemized deductions exceed the standard deduction. For 2017, the standard deduction—the amount you can deduct if you decide not to itemize—is $6,350 for a single taxpayer, $9,350 for a head of household, and $12,700 for a married couple filing jointly or a surviving spouse. The upper limit of charitable deductions is 50% of your adjusted gross income (AGI).
What can you donate: Almost anything of value including Cash, Household Items (furniture, appliances, etc.), Automobiles, Boats, Stocks, Bonds, Securities.
Where can you donate: There are tens of thousands of organizations you can donate to, here are two resources that can help you find and select the best causes for you:
IRS Charitable Search IRS published search tool that allows users to find organizations eligible to receive tax-deductible charitable contributions.
Charity Navigator Charity Navigator rates more than 9,000 charities on financial performance, accountability, and transparency.
Donor Advised Fund: What if want to contribute now but have yet to choose a worthy organization or cause to contribute to? No problem, consider establishing a Donor Advised Fund (see Vanguard, Fidelity, or ask your financial professional for assistance). When you donate cash / securities to your donor advised account you get an instant tax deductible contribution. You can then choose when and how the money it granted to your favorite charities. Your donation is also invested based on your preferences so it has the potential to grow, while you are deciding which charities to support. The deadline for 2017 charitable contributions is December 29, 2017. And remember to get receipts for everything.