With just a few days left in 2016, is there still time to take any important tax steps for the year? Bill Bischoff covered many of the key steps to take and explained how some of president-elect Donald Trump’s policies may affect you But there are still other tips you should know about.
First of all, the Internal Revenue Service released the vehicle mileage rates for 2017. These are the standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
- 53.5 cents per mile for business miles driven, down from 54 cents for 2016
- 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016
- 14 cents per mile driven in service of charitable organizations
Next, the good news: with the passage of the Protecting Americans from Tax Hikes Act in December 2015, we don’t have the annual wait for Congress to extend routine tax provisions.
However, there are some tax breaks that will be expiring on Dec. 31, 2016. So if you wanted to take advantage of these, act fast.
The personal residence cancellation of debt: This allows you to avoid paying taxes on the discharge of qualified principal residence indebtedness income. However, if you enter into a contract to get the mortgage discharged, or restructured by Dec. 31, you can finalize the transaction in 2017 and still avoid paying taxes on the cancellation of debt.
Private mortgage insurance: The deduction for mortgage insurance premiums as qualified residence interest. This permits a taxpayer whose income is below certain thresholds to deduct the cost of premiums on mortgage insurance purchased in connection with acquisition indebtedness on the taxpayer’s principal residence.
Tuition and fees: an above-the-line deduction for qualified tuition and related expenses.
Nonbusiness energy property tax credit: a $500 lifetime credit for replacing doors, windows and insulation.
A 7.5% reduction of medical expenses for seniors: 2016 is the last year for folks age 65 and over to reduce their medical expenses by only 7.5% of adjusted gross income. Next year, the percentage rises to 10%. So pay your medical bills in 2016.
Credit for plug-in motor vehicles: the 10% credit for plug-in electric motorcycles and two-wheeled vehicles (capped at $2,500).
Credit for new qualified fuel cell vehicles: this allows a credit of several thousand dollars for the purchase of such vehicles, depending on the weight of the vehicle. The amount of the credit depends on how many vehicles are sold. For the most recent information about the vehicle you’re considering buying, look at this list on the IRS website.
In the past, Congress has extended tax breaks.
In the meantime, here are some other strategies to consider:
Charitable contributions: Bill Bishoff talked about making contributions and about making direct transfers to charities for people age 70 1/2 and higher. Here’s another idea: seniors who tithe may not be able to get the full benefit of their donation. Consider gifting the money to your adult child. Your child, who probably has a mortgage, can get the full benefit of the donation — and your name is on it, so you keep your standing with your religious institution.
Medical expenses: Did you set up a flexible spending account at work? Generally, in order to get reimbursed for the deductions your employer took from your paycheck, you need to submit all your receipts for your medical expenses by Dec. 31. So pay those medical bills right away — or prepay medical or dental procedures you plan to have early next year, although, you may be able to get a little extra time. Some plans have opted to allow you to finish getting your treatments and spending your FSA allotments until March 31 of the following year. If your company subscribed to this process, relax. You have three months to get your money back. But, don’t forget.
High IRA and retirement account balances: This is a good time to review your tax bracket and deductions. It’s quite possible that you can draw some money from your taxable retirement accounts, or roll the money into a Roth IRA. If you can draw the money out at a low tax rate (0% to 15%) it may be worth doing before year-end. Too often, seniors (or their families) neglect to look at these numbers. This is especially valuable when a senior is paying tens of thousands of dollars for a care facility or care providers. For some people, this might mean a tax-free distribution or Roth rollover of $25,000 or more per year. This reduces the value of assets that are subject to income tax upon death.
Which brings us to death…
Do you have a will? As long as you are thinking about tax and financial issues, this is a good time to look at a will or living trust. A living trust can avoid the cost of probate — and give you the power to decide what do with your assets when you die. Be sure to include insurance for the fiduciary e in your will or trust — and have the estate pay for it. When you have contentious heirs, it’s important to protect the person you have put in charge of ensuring your wishes are honored.
Another important consideration: specify how assets are given to minors. If the assets are inherited by them directly, their parents may find themselves reporting directly to a court on a quarterly basis. Ensure that those assets go into a trust instead — unless, of course, you want their parents to be accountable to a court.
Speaking of beneficiaries, review all your bank accounts, insurances and other assets where beneficiaries are named. If you haven’t updated them lately, check to see if your ex-spouse is still named or even someone you’re no longer in touch with. Or in my husband’s case, his pension still showed his father as his beneficiary. His father died in 2007.
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