Year-End Tax Planning for 2017 for Individuals
Just as the daylight hours are getting shorter, so is the time for fine tuning any last-minute strategies to lower your 2017 tax bill. Often, the correct steps to take will depend on whether you see your income going up or down next year.
For the first time in decades, tax reform is a real possibility. For 2017, current law provides seven tax rates depending on your income.
The following are some of the items we should review when discussing year-end tax planning options that may be relevant to your situation.
Retirement Plans Considerations
Fully funding your company 401(k) with pre-tax dollars will reduce current year taxes, as well as increase your retirement nest egg. For 2017, the maximum 401(k) contribution you can make with pre-tax earnings is $18,000. For taxpayers 50 or older, that amount increases to $24,000.
If you have a SIMPLE 401(k), the maximum pre-tax contribution for 2017 is $12,500. That amount increases to $15,500 for taxpayers age 50 or older.
If certain requirements are met, contributions to an individual retirement account (IRA) may be deductible. For taxpayers under 50, the maximum contribution amount for 2017 is $5,500. For taxpayers 50 or older but less than age 70 1/2, the maximum contribution amount is $6,500.
Penalty for Failing to Carry Health Insurance
Despite numerous attempts by Congress to repeal Obamacare, the law is still with us and so is the penalty for not having health insurance coverage. You may be liable for this penalty if you or any of your dependents didn't have health insurance for any month in 2017. The penalty is 2.5 percent of your 2017 household income exceeding the filing threshold or $695 per adult, whichever is higher, and $347.50 per uninsured dependent under 18, up to $2,085 total per family. However, you may be eligible for an exemption from the penalty if certain conditions apply.
There is a provision in the Senate Bill that would repeal the penalty for not having health insurance coverage, effective for tax years beginning after 2018.
Reporting Healthcare Coverage
According to the IRS, if your tax return does not indicate whether or not you and your family had healthcare coverage during the year, your return will not be processed. This is the first year that the IRS is refusing to process returns if this information is omitted from the return.
Foreign Bank Account Reporting
The IRS has been actively pursuing individual who fail to report their holdings in foreign accounts. If you have an interest in a foreign bank account, it must be disclosed; failure to do so carries stiff penalties. You must file a Report of Foreign Bank and Financial Accounts (FBAR) if: (1) you are a U.S. resident or a person doing business in the United States; (2) you had one or more financial accounts that exceeded $10,000 during the calendar year; (3) the financial account was in a foreign country; and (4) you had a financial interest in the account or signatory or other authority over the foreign financial account. If you are unclear about the requirements or think they could possibly apply to you, please let me know.
The deadline for filing a FBAR is April 15. However, a six-month extension is available. If you are abroad, the due date is automatically extended until June 15, with an additional four-month extension available until October 15.
Flex Spending Accounts
Generally, you will lose any amounts remaining in a health flexible spending account at the end of the year unless your employer allows you to use the account until March 15, 2018, in which case you'll have until then. You should check with your employer to see if they give employees the optional grace period to March 15.