Start Now to Prepare for Tax Day in 2017

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With the tax deadline past, most of us are ready to turn to the more pleasant aspects of spring – tennis, golf or gardening, perhaps. But before you pack away all those tax papers, consider another look, for a head start on cutting your taxes for 2016 and beyond.

The return you’ve just done can provide some insights into ways to reduce future taxes, and many strategies work better if they are set up earlier in the year rather than later.

“The key to preparing for taxes next year is to prepare this year,” says Dave Du Val, vice president of customer advocacy at TaxAudit.com, a nationwide firm that helps customers with tax matters. “In other words, plan ahead.”

So what can your latest return tell you?

Look at your investments. If you own mutual funds in taxable accounts, see how much income you reported from interest, dividends and year-end capital gains distributions, which are profits paid out on assets the fund manager sold during the year. All these income sources are taxable in the year they are received, even if you have them reinvested in the funds they came from.

Think about ways to reduce your taxable income. The easiest is to invest as much as you can in a 401(k) or similar workplace retirement plan that allows you to deduct contributions. The maximum contribution in 2016 is $18,000, or $24,000 for those 50 and older by the end of the year.

Give money to charity. As long as donations are made by the end of the year they will count, but starting earlier will allow you more time to assess potential recipients.

Think about your tax bracket. It could rise if, for example, a non-working spouse gets a job. And it could fall if household income drops – when a spouse stops working, for instance. If your bracket is likely to fall, this might be a good year to convert a traditional IRA into a Roth IRA, since the tax bite on the converted sum would be smaller. Once the money is in a Roth, it – and all future investment gains – will never be taxed again.

For full article visit : http://money.usnews.com/investing/articles/2016-04-21/start-now-to-prepare-for-tax-day-in-2017

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