End-of-Year Resolutions: Last-Minute Ways to Lower Your Tax Bill for 2017

By Celeste Sollod, CPA

 

It is better to give than to receive. This is especially true if you’re trying to lower your 2017 tax bill at the end of the year. Generosity should be rewarded, and lower taxes are a nice return. Your tax advisor can help you structure your giving in the most advantageous way for you.

 

Give!

Remember that pledge you made to your favorite charity’s capital campaign? Now is the time to pay it.

For those who itemize deductions, which includes most homeowners and those who pay high state taxes, charitable contributions of cash or non-cash items to a qualified organization are a deduction from income, which means there’s less income to tax. Taxpayers can usually deduct up to 50 percent of their adjusted gross income, for the few who can afford to give that much, though there are limited situations in which only up to 20 or 30 percent of adjusted gross income can be deducted from AGI, such as cash donations to a private foundation. Consult with your tax advisor on how to maximize your deductions.

 

Give to Yourself!

Charity begins at home, as the old saying goes. One way to lower your tax bill is to give to your future self by fully funding your retirement accounts. Individuals can put aside $18,000 each in a 401(k) or most other employer-sponsored retirement plans, while those age 50 and over can put aside $24,000 each. Self-employed taxpayers and their employees who have access to SEP plans can contribute up to 25 percent of their compensation or $54,000, whichever is less. Those who have access to a 457(b) plan have special catch-up contribution limits of up for $36,000 once they are within three years of normal retirement age.

Once you’ve fully funded your retirement account, you can contribute to a traditional IRA. Contributions are tax deductible up to a certain income level, depending on whether or not you or your spouse participate in an employer-sponsored retirement plan.

 

Give to Your Children and Grandchildren!

A contribution to a child or grandchild’s college fund will be gratefully received by the recipient—if not immediately, when they are actually in college—and can lower your tax bill. Funding a 529 plan often allows the giver to deduct income from state income taxes. Different states have different rules.

 

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