8 Tax Filing Strategies for Individuals

Tax forms

We are officially in the midst of tax season. Unlike most years when Tax Day falls on April 15, this year Tax Day will fall on April 18, 2016.  The reason why it’s a few days later is that Federal law states that if the tax deadline lands on a weekend or a national holiday, it’s extended to the next business day.  This year, Emancipation Day in Washington D.C. falls on April 15, moving the tax deadline to the April 18.  A few other changes this year are:

  • Tax brackets are rising.  Most tax brackets are adjusted for inflation, and this year, they are rising by around 0.4 percent.
  • Estate tax exemption is rising.  This year, the estate tax exemption will be $5.45 million due to inflation, a rise from $20,000 last year.  It looks as if this figure will rise next year as well.
  • Personal exemptions are rising.  The allowable personal exemption amount will be $4,050 this year, a $50 increase.

Filing Tips for Individuals​​

If you’re closing in on retirement, you may be unsure of how the more popular tax filing strategies will work for you. There are still plenty of ways that you can maximize your return, save on your taxes, and protect your wealth.  Here are 8 tax filing tips:

1. Itemize charitable contributions. You’re allowed to deduct up to 50 percent of your taxable income in charitable contributions as long as they are tax-exempt organizations. In addition to monetary contributions, any volunteering expenses, personal property, or stocks count as contributions. 

2. Itemize job-related deductions. Some expenses incurred with your job can also be deducted from your taxable income. Things like a home office, any education expenses related to your job, and even auto expenses count.

3. Consider your filing status. If you’re married, you probably plan on filing jointly with your spouse. In most cases, this is the best course of action, but there are some circumstances that can help you save money by filing separately. Both of you will have a lower adjusted gross income, so if one of you has a lot of medical expenses, filing separately can help you reach that AGI percentage needed for deductions. Make sure to speak with your financial advisor or CPA to see if this is the best option for you.

4. Claim a dependent care credit. If you’re responsible for the expenses of caring for a dependent, such as a child or a spouse, you may qualify for the dependent care credit. For one eligible individual, the credit is capped at $3,000. For two or more, the credit is increased to $6,000.

5. Deduct medical expenses. If a portion of your medical expenses exceeds 10 percent of your adjusted gross income, they can be deducted. There is also a temporary exemption that will continue until the end of this year for taxpayers 65 and older, which includes their spouses. If you or your spouse are 65 or older or turned 65 during the tax year, you can deduct unreimbursed medical expenses that exceed 7.5 percent of your adjusted gross income.

6. Deduct rental property expenses. If you’re using rental property as a source of income, you may be able to use some of the expenses, such as utilities and insurance, as a deduction. Talk to a CPA to be sure you qualify, as there are some stipulations depending on your rental property’s use.

7. Deduct self-employment expenses. If you’re a self-employed contractor, there are quite a few tax breaks you can look into to save you a lot of money while filing. Things like a home office, education expenses, equipment like computers and telephones, and even certain expenses like your internet bill can all be deducted. To qualify, these items must be used strictly for your business and follow the IRS rules, but they can reduce your adjusted gross income.

8. Consider tax-loss harvesting. Tax-loss harvesting is an industry term that refers to selling an investment that has lost value so that you may realize a capital loss. You can then use that loss to offset either any realized capital gains or up to $3,000 a year in ordinary income. Essentially, this puts you in a position to lower your tax liability. However, this only makes sense if it doesn’t have a negative effect on your long-term goals. Though it sounds simple, tax-loss harvesting can become quite complex depending on the range of your investments, your strategy, and tax rules around what you can do with your loss. Be sure to discuss this with a trusted advisor.

Disclosure:  This information is provided to you as a resource for informational purposes only.  It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors.  Past performance is not indicative of future results.  Investing involves risk including the possible loss of principal.  This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.