3 Year-End Tax Planning Moves That Can Save You Bundles

Thank goodness election season is over -- almost. 

Now we can get back to our regularly scheduled lives of watching football, raking leaves and figuring out how to avoid crazy relatives over the holidays.

Oh - and add your year-end tax planning to that list.

Yes - it's that time of year. And what you do now - yes now, not on December 31 - can make a ...huge difference to your 2016 tax bill in April. 

So pour a cup of coffee - or a stiff drink - and focus. 

We've already offered three less obvious things you can do to get your portfolio in tip-top tax shape before year-end.

And while you know to max out your charitable contributions (and keep your receipts!) and be aware of that dreaded alternative minimum tax, here are three more obscure things you may not have considered that can get that tax bill down. 

Watch Your Required Minimum Distributions - Even if You're Not 70.5

Distributions from an IRA are required for people who turn 70.5 during the tax year.

And remember, that's taxable income to you, so make sure you are properly withheld or have the money set aside to pay the bill.

But if you inherited an IRA this year, you also may have to take a distribution, regardless of your age, says Ellen Minkow, CPA and partner at MS1040 LLC.

Especially if you are not the deceased's spouse.

There are generally two options for people who are non-spouse beneficiaries.

  1. You can take distributions over your life expectancy, a.k.a. "the stretch option," which mitigates your tax hit every year.
  1. Or you can liquidate the account within five years of the original owner's death.

Either way, talk to your advisor.

If you are charitably inclined, though, you may want to consider sending your distribution directly to your favorite charity.

Thanks to recent tax changes, if you are at least age 70.5, you now can make a Qualified Charitable Distribution and avoid the normal tax consequences, says Jackie Perlman, principal tax research analyst at H&R Block.

That means no tax hit on the money that goes directly to charity. There's no charitable deduction either, though, but let's not be greedy. Again, talk to an advisor.  

If You Changed Jobs, Watch Your 401(k).

If you changed jobs, let your new employer know that you were already contributing to a 401(k) at your old job, says Minkow. 

Remember, you can't exceed the 2016 maximum contribution of $18,000 or $24,000 if you are 50 and over.

If you do, you risk getting taxed twice on that excess contribution.

So what do you do? Go to HR, and fix this before the end of the year.

Let's say don't realize until January 2017 that you over-contributed $1,000 in 2016. And also let's presume that your extra $1,000 yielded an additional $100 in earnings. 

When you received that total over-contribution of $1,100 back, you will have to report the $1,000 as income on your 2016 return, but because you received the money in 2017, the extra $100 must be reported on your 2017 return.

See - too confusing. Fix this now. 

Take Advantage of the Nonbusiness Energy Property Credits. 

This is one of those credits that may get extended into next year, but on the rare chance it doesn't, take advantage of it now, suggests Perlman.

You'll get a credit of 10% of the cost of qualified energy-efficient improvements.

That includes adding insulation, energy-efficient exterior windows and doors and certain roofs. The cost of installing that stuff is not included, though. But you can include installation costs on certain high-efficiency heating and air-conditioning systems, as well as high-efficiency water heaters and stoves that burn biomass fuel.

There is a lifetime limitation of $500, of which only $200 may be used for windows.

So check out the IRS site for more details.

A few notes: Just because something has an Energy Star on it, doesn't mean you can use it toward the credit. So just because your toaster has that blue Energy Star sticker, don't think it will count.

And the improved efficiencies have to occur inside your home. So that energy-efficient pool heater you bought only counts to keep your kids happy.

It's best to work on these things now. They'll save you money and may actually be easier than trying to avoid crazy Uncle Charlie this Thanksgiving.

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