December 31st is fast approaching, and now’s the time to start preparing for next year’s income tax filing season. While that involves the usual round of getting documents organized and preparing financial statements, there are some additional considerations to keep in mind, thanks to the recent presidential election. 

President-elect Trump has proposed some new measures that could significantly alter the tax outlook of some Americans. Wealthier earners, in particular, are poised to benefit from certain tax cuts which may be forthcoming. While the new tax plan has yet to be finalized, now’s a good time to make some strategic moves to ensure that your tax bill for 2016 is as low as possible and that you're taking into account how your situation could change next year. (See also: Donald Trump’s Tax Plan: Who Will Love It.)

1. Maximize Deductions

Deductions reduce your taxable income for the year, which is certainly important if you’re drawing a larger income and you want to reduce the amount you’re handing over to the IRS. When you’re able to deduct more expenses and lower your income, that could result in a lower tax rate.

Tax filers can either claim the standard deduction or they can itemize. For 2016, the standard deduction is $6,300 for single filers and married couples filing separately, and $12,600 for married couples filing a joint return.

Itemizing makes sense when your deductible expenses exceed the standard deduction. Under Trump’s tax plan, the standard deduction would increase to $15,000 for singles and $30,000 for couples. Itemized deductions would be capped at $100,000 for single filers and $200,000 for married couples filing jointly. What's more, the number of tax brackets could shrink from the current seven (with a top bracket of 39.6%) to three (with a top bracket of 33%). 

If you’re a high-income earner who normally itemizes, you’ll want to claim as many deductions as possible for 2016 when you're likely to be in a higher bracket. For example, if you were planning to commit a certain amount of income to charitable donations in 2017, you could make those now instead and write that off on your taxes. Generally, you can deduct up to 50% of your adjusted gross income in charitable donations.

One exception: If you're in the group of upper-middle-class taxpayers who could be shifted into the 33% bracket from a lower bracket under the new plan (see Trump's Upper-Middle Class Tax Increase), you may want to delay those deductions until 2017.

2. Top Off Qualified Retirement Accounts

Saving in a qualified retirement account, such as a 401(k) or an individual retirement account (IRA), can provide certain tax advantages and it is a good way to increase wealth. Contributions to a traditional IRA, for example, are tax-deductible, and contributions grow on a tax-deferred basis. Qualified withdrawals from a Roth IRA are tax-free after age 59½. For 2016, you can contribute $5,500 to an IRA, plus an additional $1,000 if you’re over age 50. Your ability to deduct contributions or save in a Roth IRA are determined in part by your income.

Money that’s contributed to a 401(k) is not included in your taxable income for the year, which can be helpful if you’re teetering on the edge between two tax brackets. For 2016, savers can contribute $18,000 to a 401(k), along with another $6,000 if you’re 50 or older.

As noted above, President-elect Trump has proposed reducing the current tax bracket system from seven tax rates to just three:12%, 25% and 33%. The 25% rate would apply to married couples filing jointly and making more than $75,000 but less than $225,000 and single people making more than $37,500 but less than $112,500. Couples making over $225,000 (and single people making more than $112,500) would be subject to the 33% rate. If the tax rates are simplified, the value of those deductions could become less important, so it’s best to take advantage of them fully this year if you're in a group whose tax bracket will drop. (See: How Trump Could Change the Retirement Landscape.)

3. Sell Appreciated Assets

When you purchase an investment, such as a stock or real estate, then sell it for a profit, you’re responsible for paying capital gains tax on the income the investment generates. If you hold an asset for less than a year, the short-term capital gains tax applies. If you hold it longer than a year, you’d pay the more favorable long-term capital gains tax rate, which, as of 2016, maxes out at 20% for single filers earning $413,200 and married couples filing jointly who report a combined income of $464,850 or more. (Read: Capital Gains Tax 101.)

The Trump tax plan would reduce the income threshold at which the 20% capital gains tax rate would apply. Going forward, single filers making $112,500 and married couples filing jointly earning $225,000 or more would pay the 20% capital gains rate. If you have some assets that have appreciated substantially and you earn more than those amounts but less than the current floor for triggering the 20% capital gains tax, selling them before the year is out could help you avoid paying more in taxes under President Trump.

The Bottom Line

President-elect Trump won’t officially take office until mid-January, but it’s important to begin prepping now for the anticipated tax changes. They may not be exactly what's discussed here (see Ryan vs. Trump: How Their Tax Plans Differ), but the general direction seems clear. With the year winding down, there’s no time to lose. Review your investments, double-check your retirement contributions for the year and track down receipts for things like charitable donations, business expenses or medical bills to yield the most tax savings possible.

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