Tax Planning for Mutual Fund Capital Gain Distributions

2016 Tax Planning Opportunities

In Asset Allocation, Charitable Gifting, College & Education Savings, General Financial Planning, Personal Finance, Tax by Chip Hymiller

As in years past, Congress has given the gift of a new tax bill at the very end of the year.  What made this year different?  Many laws that were simply being “extended” are now permanent!  Well, as permanent as tax bills can ever be!  So, here is an overview of some of the tax laws that were extended that may impact you this year:

Tax-Free IRA Distributions to Charities are now Permanent

Individuals who are over the age of 70 ½ may have their IRA trustee send their distribution directly to a charitable organization.  Doing so makes the distribution tax free and the distribution counts as their required minimum distribution for the year.  This change is a welcome one and a fantastic opportunity for retirees who are charitably minded.

Sales Tax Deduction Made Permanent

Taxpayers who pay little or no state income tax have been able to take an itemized deduction for sales tax rather than state income tax. This law has been expiring every few years, but it has now been made permanent.  This is great news for taxpayers who live in states with no income tax and for retirees who pay very little state income tax.

Educator Expense Deduction Made PermanentTax Planning and Investment Management Advisors

Elementary and secondary educators can deduct $250 paid for their classroom expenses.  Not only was this law made permanent, but it will be indexed for inflation beginning in 2016.  Also, professional development expenses are now included in the expenses that can be deducted.

Higher Education Deductions and Credits Expanded

The American Opportunity Tax Credit of $2,500 was scheduled to expire, but has now been made permanent.  The credit is available for all 4 years of undergraduate education.  Also, with regards to higher education, the deduction for education expenses up to $4,000 was extended through 2016.

Improvements to 529 Plans

Section 529 plans allow tax-deferred earnings and tax-free distributions on “qualified” higher education expenses.  Those qualified expenses now include computer equipment and technology.  This is a major improvement for this type of plan which has typically had a very narrow view of “qualified education expenses”.

Extension of Solar Energy Credits

The solar energy tax credit was extended through 2022.  The available credit is 30% of the cost for solar panels or solar water heaters.  This provision was due to expire after 2016, so this gives a little more time for those who might be interested in installing this type of equipment.

Given the changes in 2016, it is important that you take advantage of any financial planning opportunities that are available given your specific situation.  Please contact our office if you have any questions or would like to discuss financial planning opportunities that may be relevant to you.