INVEST IN TREASURY SECURITIES
For high-income taxpayers, who live in high-income-tax states, investing in Treasury bills, bonds, and notes can pay off in tax savings. The interest on Treasuries is exempt from state and local income tax. Also, investing in Treasury bills that mature in the next tax year results in a deferral of the tax until the next year.
KEEP TRACK OF MILEAGE DRIVEN FOR BUSINESS, MEDICAL, OR CHARITABLE PURPOSES
If you drive your car for business, medical or charitable purposes, you may be entitled to a deduction for miles driven. For 2017, it's 53.5 cents per mile for business, 17 cents for medical and moving purposes, and 14 cents for service for charitable organizations. You need to keep detailed daily records of the mileage driven for these purposes to substantiate the deduction.
CONSIDER TAX-EXEMPT MUNICIPAL BONDS
Interest on state or local municipal bonds is generally exempt from federal income tax and from tax by the issuing state or locality. For that reason, interest paid on such bonds is somewhat less than that paid on commercial bonds of comparable quality. However, for individuals in higher brackets, the interest from municipal bonds will often be greater than from higher paying commercial bonds after reduction for taxes.
Gain on sale of municipal bonds is taxable and loss is deductible. Tax-exempt interest is sometimes an element in the computation of other tax items. Interest on loans to buy or carry tax-exempts is non-deductible.
GIVE APPRECIATED ASSETS TO CHARITY
If you're planning to make a charitable gift, it generally makes more sense to give appreciated long-term capital assets to the charity, instead of selling the assets and giving the charity the after-tax proceeds. Donating the assets instead of the cash prevents you having to pay capital gains tax on the sale, which can result in considerable savings, depending on your tax bracket and the amount of tax that would be due on the sale. Additionally, you can obtain a tax deduction for the fair market value of the property.
Tip: Many taxpayers also give depreciated assets to charity. Deduction is for fair market value; no loss deduction is allowed for depreciation in value of a personal asset. Depending on the item donated, there may be strict valuation rules and deduction limits.
TAKE ADVANTAGE OF YOUR EMPLOYER'S BENEFIT PLAN TO GET AN EFFECTIVE DEDUCTION FOR ITEMS INCLUDING MEDICAL EXPENSES
Medical and dental expenses are generally only deductible to the extent that they exceed 10 percent of your adjusted gross income (AGI). For most individuals, particularly those with high income, this eliminates the possibility for a deduction. You can effectively get a deduction for these items if your employer offers a Flexible Spending Account, sometimes called a cafeteria plan.
These plans permit you to redirect a portion of your salary to pay these types of expenses with pre-tax dollars. Another such arrangement is a Health Savings Account. Ask your employer if they provide either of these plans.
CHECK OUT SEPARATE FILING STATUS
Certain married couples may benefit from filing separately instead of jointly. Consider filing separately if you meet the following criteria:
• One spouse has large medical expenses, miscellaneous itemized deductions, or casualty losses.
• The spouses' incomes are about equal.
Separate filing may benefit such couples because the adjusted gross income "floors" for taking the listed deductions will be computed separately. On the other hand, some tax benefits are denied to couples filing separately. In some states, filing separately can also save a significant amount of state income taxes.
IF SELF-EMPLOYED, TAKE ADVANTAGE OF SPECIAL DEDUCTIONS
You may be able to expense up to $510,000 in 2017 for qualified equipment purchases for use in your business immediately instead of writing it off over many years. Additionally, self-employed individuals can deduct 100 percent of their health insurance premiums as business expenses. You may also be able to establish a Keogh, SEP, or SIMPLE IRA plan, or a Health Savings Account, as mentioned above.
IF SELF-EMPLOYED, HIRE YOUR CHILD IN THE BUSINESS
If your child is under the age of 18, he or she is not subject to employment taxes from your unincorporated business (income taxes still apply).
This will reduce your income for both income and employment tax purposes and shift assets to the child at the same time; however, you cannot hire your child if he or she in under the age of 8 years old.
TAKE OUT A HOME-EQUITY LOAN
Most consumer-related interest expense, such as from car loans or credit cards, is not deductible. Interest on a home equity loan, however, can be deductible. It may be advisable to take out a home-equity loan to pay off other non-deductible obligations.
BUNCH YOUR ITEMIZED DEDUCTIONS
Certain itemized deductions, such as medical or employment related expenses, are only deductible if they exceed a certain amount. It may be advantageous to delay payments in one year and prepay them in the next year to bunch the expenses in one year. This way you stand a better chance of getting a deduction.