Alternate Minimum Tax

The Alternative Minimum Tax (AMT) exemption “patch,” which was made permanent by the American Taxpayer Relief Act (ATRA) of 2012, is indexed for inflation and it’s important not to overlook the effect of any year-end planning moves on the AMT for 2016 and 2017.

Items that may affect AMT include deductions for state property taxes and state income taxes, miscellaneous itemized deductions, and personal exemptions. Please call if you’re not sure whether AMT applies to you.

Note: AMT exemption amounts for 2016 are as follows:

• $53,900 for single and head of household filers,
• $83,800 for married people filing jointly and for qualifying widows or widowers,
• $41,900 for married people filing separately.

Other Year-End Moves

Retirement Plan Contributions. Maximize your retirement plan contributions. If you own an incorporated or unincorporated business, consider setting up a retirement plan if you don’t already have one. It doesn’t actually need to be funded until you pay your taxes, but allowable contributions will be deductible on this year’s return.

If you are an employee and your employer has a 401(k), contribute the maximum amount ($18,000 for 2016), plus an additional catch-up contribution of $6,000 if age 50 or over, assuming the plan allows this and income restrictions don’t apply.

If you are employed or self-employed with no retirement plan, you can make a deductible contribution of up to $5,500 a year to a traditional IRA (deduction is sometimes allowed even if you have a plan). Further, there is also an additional catch-up contribution of $1,000 if age 50 or over.

Health Savings Accounts. Consider setting up a health savings account (HSA). You can deduct contributions to the account, investment earnings are tax-deferred until withdrawn, and amounts you withdraw are tax-free when used to pay medical bills.

In effect, medical expenses paid from the account are deductible from the first dollar (unlike the usual rule limiting such deductions to the excess over 10 percent of AGI). For amounts withdrawn at age 65 or later that are not used for medical bills, the HSA functions much like an IRA.

To be eligible, you must have a high-deductible health plan (HDHP), and only such insurance, subject to numerous exceptions, and must not be enrolled in Medicare. For 2016, to qualify for the HSA, your minimum deductible in your HDHP must be at least $1,300 for single coverage or $2,600 for a family.

Summary

These are just a few of the steps you might take. Please  for assistance with implementing these and other year-end planning strategies that might be suitable to your particular situation.