With the New Year Comes a New Set of Numbers

Every January brings updates from the IRS and Social Security. It helps to know those numbers relative to your cash flow and tax situation. I'll mention a few for you to consider:

Social Security cost of living increase for 2016............$0
The government deemed there was no inflation in 2015, so no increase in monthly payouts.

Kiddie tax amount (children under 19 and dependent full time students under .............................................$1,050
This pertains to investment income not earned income.

Social Security earning base.......................$118,000
You must earn over $118,000 before your employer stops deducting SS taxes.

Social Security earnings limit......................$15,720
Maximum earned income under Normal Retirement Age 66.

Annual Gift Exclusion...............................$14,000
You may gift $14,000 to any number of individuals and not pay a gift tax.

401(k), SEP, TSA maximum contribution...............$18,000
Catch up for those over 50...........................$1,000
Make sure you contact HR to increase your contribution to reach the max. Contributions may lower your taxable income for the year.

Contribution limit for IRA's........................$5,500
Catch up for those over 50 .........................$1,000
If you turn 50 any time during 2016, you may contribute $6,500 max.
If you can't contribute the maximum, contribute something!

Health Savings Account contribution:
Single.....................................................$3,350
Family.....................................................$6,750
Catch up for those over 50 .........................$1,000
Since you are not required to spend down an HSA at the end of each year, this is a good way to grow retirement savings.

These are just a few numbers that may have meaning for you. Consult your tax person to determine which apply to you and to learn additional tax ways reduce your tax bill.

Be $ Smart - Take advantage of all opportunities to save on taxes, especially those that grow tax-deferred.

Minimize your taxes

It makes sense to find ways to reduce your taxable income. One place to start is your portfolio. Your investments generate a certain amount of taxable income each year as witnessed by the number of 1099's you receive in the new year.

If you want to reduce the taxes generated by your portfolio, put the big tax generating investments in your tax-deferred retirement accounts - IRA, Roth IRA and 401k. These include real estate investment trusts (REIT's), taxable bonds and actively managed mutual funds (which usually have high, annual portfolio turnover).

Put stocks and stock indexed mutual funds in your taxable accounts where you will be happy holding them for 12 months or longer. After 12 months, they are taxed as long-term capital gains not as ordinary income, a much lower rate. If you pass this account on to your heirs, they could pay virtually no capital gains tax when they sell.

Be careful as you reconfigure your portfolio. Do it slowly and methodically. If you sell too many investments with gains in any given year in your taxable accounts you may increase your tax obligation and push yourself into a higher tax bracket. Best to consult your account first.

Be $ Smart - re-position your investments to minimize your taxes.