Give Yourself the Gift of Year End Tax Planning

December 13, 2016 | Authored by Dopkins Tax Advisory Group

December 13, 2016 – Before you get caught up in all the holiday gatherings and celebrations, it is important to take some time to evaluate your tax situation for the current year. Some simple personal tax planning techniques can potentially save you hundreds or thousands of dollars either in the current or succeeding year. While some events such as the timing of having a child may be difficult to control, there are many other events you can manipulate to reduce your tax liability.

Step 1: What’s Changed in Your Life This Year?

The first step in determining how your current tax year is turning out is to evaluate it against last year. Questions to consider include:

  • What has changed since last year?
  • Have you or your spouse had a child?
  • Do you have a child who no longer qualifies as a dependent?
  • Have you become married or divorced?

Any of the above situations can result in a change in the number of personal and dependency exemptions you can claim which will then affect your tax liability, either for the better, or not so much.

For example, a child born on December 31st of the current year is considered a child for the entire year. This means that you can claim the full dependency exemption for 2016 of $4,050 as long as it is not phased out due to AGI limitations. Your child may also qualify you for the child tax credit of $1,000 if your income is under the threshold. Don’t forget to adjust your W-4 to reflect the new addition to the family. The W-4 should also be adjusted when a child is no longer considered a dependent for tax purposes.

A marriage or divorce will have implications on your tax liability as well. Similar to having a child, a marriage on the last day of the year is considered a marriage for the entire year. Therefore, even though you qualified as single for the majority of the year, since you were married as of December 31st, you can file a joint return. Depending on your income level compared to that of your spouse, you will either receive a marriage benefit or penalty when filing together. In terms of divorce, if the divorce is not finalized towards the end of the year, it may be more beneficial to file jointly rather than separately.

Step 2: What Changes In Your Life Can You See for Next Year

The next step would be to look into the next year or so and decide whether you think your tax rates will be higher or lower. The following questions should be considered:

  • Are you expecting a big promotion next year that will increase your income?
  • Are you planning to retire next year?
  • Have you incurred significant medical expenses in the current year?
  • Do you believe the tax rates will be lower next year due to the results of the presidential election?

While some events may be difficult to control, there are many other events you can manipulate to reduce your tax liability.

If you are expecting more income next year, you may want to consider deferring charitable donations until then. That way you will have more itemized deductions to lower your tax liability. On the other hand, retiring generally results in a decrease of income. Perhaps accelerating those deductions into the current year would be more beneficial. This can be done by paying property taxes or the January mortgage payment this year, prepaying any state and local taxes by December 31st, or donating to charities at the end of the current year, rather than donating in January or February of the next year. You could even go as far as scheduling elective medical procedures before the end of the year if you have already surpassed the 10% AGI threshold (7.5% for ages 65 and older).

A change in tax rates could affect your planning as well. If the proposed tax plan becomes effective for the 2017 tax year, you may want to consider taking advantage of itemized deductions in the current year since rates for 2016 will be higher.  In addition, some itemized deductions may be eliminated under the proposed tax plan and capped at $100,000 for single individuals and $200,000 for married couples. You may also consider deferring income into 2017 if you believe the tax rates will be lower than the current rates. This can be done by postponing the sale of assets at a gain, harvesting losses to offset current gains, or maximizing contributions to qualified retirement plans.

Step 3: Consult Your Tax Advisor

If you have any questions or would like to request tax advice on any of the above topics, please contact your Dopkins Tax Advisor.



About the Author

Dopkins Tax Advisory Group

Our tax professionals include specialists who are proactive, strategic thinkers who work to maximize your cash flow. In addition to cash flow considerations, we also believe that tax planning is most effective when it is integrated with, and fully supports, your business plan and personal goals. Our approach to tax planning will help you better understand the tax implications of any proposed course of action, and together we can make the right decisions for your business. Contact us via email link below for more information. for more information contact your Dopkins Client Service Coordinator or Gregory Urban at

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