You must obtain written substantiation, in addition to a canceled check, for all charitable donations.

Charities are required to inform you of the amount of your net contribution, where you receive goods or services in excess of $75 in exchange for your contribution.

If the value of contributed property exceeds $5,000, you must obtain a qualified written appraisal (prior to the due date of your tax return, including extensions), except for publicly-traded securities and non-publicly-traded stock of $10,000 or less.

Planning Suggestion: If you are considering contributing marketable securities to a charity and the securities have declined in value, sell the securities first and then donate the sales proceeds. You will obtain both a capital loss and a charitable contribution deduction.

On the other hand, if the marketable securities or other long-term capital gain property have appreciated in value, you should contribute the property in kind to the charity. By contributing the property in kind, you will avoid taxes on the appreciation and receive a charitable contribution deduction for the property’s full fair market value.

If you contribute appreciated, publicly-traded stock (with no restrictions) to a private foundation, you are entitled to a charitable contribution deduction for the full fair market value of the stock.

If you wish to make a significant gift of property to a charitable organization yet retain current income for yourself, a charitable remainder trust may fulfill your needs. A charitable remainder trust is a trust that generates a current charitable deduction for a future contribution to a charity. The trust pays you income annually on the principal in the trust for a specified term or for life. When the term of the trust ends, the trust’s assets are distributed to the designated charity. You obtain a current tax deduction when the trust is funded based on the present value of the assets that will pass to the charity when the trust terminates. This accelerates your deduction into the year the trust is funded, while you retain the income from the assets. This method of making a charitable contribution can work very well with appreciated property.

If you volunteer time to a charity, you cannot deduct the value of your time, but you can deduct your out-of-pocket expenses. If you use your automobile in connection with performing charitable work, including driving to and from the organization, you can deduct 14 cents per mile. You must keep a record of the miles.

The allowable deduction for donating an automobile (also, a boat and airplane) is significantly reduced. The deduction for a contribution made to a charity, in which the claimed value exceeds $500, will be dependent on the charity’s use of the vehicle. If the charity sells the donated property without having significantly used the vehicle in regularly conducted activities, the taxpayer’s deduction will be limited to the amount of the proceeds from the charity’s sale. In addition, greater substantiation requirements are also imposed on property contributions. For example, a deduction will be disallowed unless the taxpayer receives written acknowledgement from the charity containing detailed information regarding the vehicle donated, as well as specific information regarding a subsequent sale of the property.

In addition to medical expenses for doctors, hospitals, prescription medications and medical insurance premiums, you may be entitled to deduct certain related out-of-pocket expenses such as transportation, lodging (but not meals), and home healthcare expenses. If you use your car for trips to the doctor during 2015, you can deduct 23 cents per mile for travel during 2015. Payments for programs to help you stop smoking and prescription medications to alleviate nicotine withdrawal problems are deductible medical expenses. Uncompensated costs of weight-loss programs and diet food to treat diseases diagnosed by a physician, including obesity, are also deductible medical expenses.

The deduction is limited to the extent of your medical expenses exceed 10 percent of your adjusted gross income for taxpayers under age 65. The AGI floor remains at 7.5% through 2016 for taxpayers over age 65. In the case of married taxpayers filing jointly, only one spouse needs to have attained the age of 65 before the end of the taxable year for the lower 7.5% AGI limit.

Planning Suggestion: If you pay your medical expenses by credit card, the expense is deductible in the year the expense is charged, not when you pay the credit card company. It is important to remember that prepayments for medical services generally are not deductible until the year when the services are actually rendered. Because medical expenses are deductible only to the extent they exceed 7½% or 10% of AGI as discussed above, they should, where possible, be bunched in a year in which they would exceed this AGI limit.

Under certain conditions, if you provide more than half of an individual’s support, such as a dependent parent, you can deduct the unreimbursed medical expenses you pay for that individual to the extent all medical expenses exceed the applicable AGI limit. Even if you cannot claim that individual as your dependent because his or her 2015 gross income is $4,000 or more, you are still entitled to the medical deduction. Please consult your client service professional for details.

Premiums you pay on a qualified long-term care insurance policy are deductible as a medical expense. The maximum amount of your deduction is determined by your age. The following table sets forth the deductible limits for 2016:

These limitations are per person, not per return. Thus, a married couple over 70 years old has a combined maximum deduction of $9,740, subject to the applicable AGI limit.

Generally, if your employer pays these premiums, they are not taxable income to you. However, if this benefit is provided as part of a flexible spending account or cafeteria plan arrangement, the premiums are taxable to you.

Medical payments for qualified long-term care services prescribed by a licensed healthcare professional for a chronically ill individual are also deductible as medical expenses.

The Patient Protection and Affordable Care Act (the “ACA”) provides that any plan that covers dependents must be extended to provide coverage of adult children until the day the child reaches age 26. The general exclusion from gross income also includes premiums from employer-provided health benefits to any employee’s child who has not attained age 27 as of the end of the taxable year is also extended under the ACA.

Interest as well as points paid on a loan to purchase or improve a principal residence is generally deductible in the year paid. The mortgage loan must be secured by your principal residence. Points paid in connection with refinancing an existing mortgage are not deductible currently, but rather must be amortized over the life of the new mortgage. However, if the mortgage is refinanced again, the unamortized points on the old mortgage can be deducted in full.

An “above-the-line” deduction (a deduction to arrive at AGI) is allowed for interest paid on qualified education loans. All student loan interest up to the $2,500 annual limit is deductible. However, in 2016 this deduction is phased out for single individuals with modified AGI of $65,000 to $80,000 ($130,000 to $160,000 for joint returns).

Caution: Interest paid to a relative or to an entity (such as a corporation or trust) controlled by you or a relative does not qualify for the deduction.

Non-business bad debts are treated as short-term capital losses when they become totally worthless. To establish worthlessness, you must demonstrate there is no reasonable prospect of recovering the debt. This might include documenting the efforts you made to collect the debt, including correspondence to the debtor to demand payment.

If your employer (including a tax-exempt organization) has a 401(k) plan or 403(b) plan, as applicable, consider making elective contributions up to the maximum amount of $18,000 or $24,000 if over age 50, especially if you are unable to make contributions to an IRA. You should also consider making after-tax, nondeductible contributions to a 401(k) plan if the plan allows, as future earnings on those contributions will grow tax-deferred. A nondeductible contribution to a Roth IRA can also be considered.

Planning Suggestion: If you are a participant in an employer’s qualified plan (which includes a 401(k) plan) and are at least 50 years old, you can elect to make a deductible “catch-up” contribution of $5,500 (increased to $6,000 in 2016) to the plan. To make a “catch-up” contribution, your employer’s plan must be amended to allow such contributions.

The total allowable annual deduction for IRAs is $5,500, subject to certain AGI limitations if you are an “active participant” in a qualified retirement plan. A non-working spouse may also make an IRA contribution based upon the earned income of his or her spouse. A catch-up provision for individuals age 50 or older applies to increase the deductible limit by $1,000 for IRAs to a total deductible amount of $6,500 (these amounts are unchanged for 2016).

Planning Suggestion: Consider making your full IRA contribution early in the year so that income earned on the contribution can accumulate tax-free for the entire year.

Planning Suggestion: If money is tight, consider the use of credit cards to make tax deductible year-end payments. However, interest paid to a credit card company is not deductible because it is personal interest.

Caution: If you choose to accelerate income into 2015 or defer deductions to 2016, make sure your estimated tax payments and withheld taxes are sufficient to avoid 2015 estimated tax penalties.

The tax rate for net long-term capital gains is 20% for taxpayers otherwise subject to the 39.6% marginal tax on ordinary income. The 15% tax rate continues to apply for taxpayers otherwise subject to the 25% to 35% ordinary marginal tax rate, and a 0% rate applies for taxpayers otherwise subject to the 10% to 15% ordinary tax rate.

Caution: The tax law contains rules to prevent converting ordinary income into long-term capital gains. For instance, net long-term capital gains on investment property are excluded in computing the amount of investment interest expense that can be deducted unless the taxpayer elects to subject those gains to ordinary income tax rates. Additionally, if long-term real property is sold at a gain, the portion of the gain represented by prior depreciation is taxed at a maximum 25% rate.

Capital losses are offset against capital gains. Net capital losses of up to $3,000 can be deducted against ordinary income. Unused capital losses may be carried forward indefinitely and offset against capital gains and up to $3,000 of ordinary income annually, in future years.

Planning Suggestion: Add up all capital gains and losses you have realized so far this year, plus anticipated year-end capital gain distributions from mutual funds (this amount should be presently available by calling your mutual fund’s customer service number). Then review the unrealized gains and losses in your portfolio. Consider selling additional securities to generate gains or losses to maximize tax benefits.

Caution: Do not sell a security simply to generate a gain or loss to offset other realized gains or losses. The investment merits of selling any security must also be considered.

Note: Capital gains and losses on publicly-traded securities are recognized on the trade date, not the settlement date. For instance, gains and losses on trades executed on December 31, 2015, are taken into account in computing your 2015 taxable income.

If a security is sold at a loss and substantially the same security is acquired within 30 days before or after the sale, the loss is considered a “wash sale” and is not currently deductible. However, this nondeductible loss is added to the cost of the purchased security that caused the “wash sale.” This basis adjustment will reduce gain, or increase loss, later when that security is sold.

Qualified dividend income from domestic corporations and qualified foreign corporations is taxed at the same reduced rates as long-term capital gains for regular tax and AMT purposes.

Planning Suggestion: For taxpayers who are owners of closely-held corporations or a corporation that was converted to an S corporation, there are some planning opportunities available in light of the lower dividend tax rates. Your client service professional can be consulted for further guidance.

For sales of a principal residence, up to $500,000 of gain on a joint return ($250,000 on a single or separate return) can be excluded. To be eligible for the exclusion, the residence must have been owned and occupied as your principal residence for at least two of the five years preceding the sale. The exclusion is available each time a principal residence is sold, but only once every two years. Special rules apply in the case of sales of a principal residence after a divorce and sales due to certain unforeseen circumstances. If a taxpayer satisfies only a portion of the two-year ownership and use requirement, the exclusion amount is reduced on a pro rata basis.

Example: Husband and wife file a joint return. They own and use a principal residence for 15 months and then move because of a job transfer. They can exclude up to $312,500 of gain on the sale of the residence (5/8 of the $500,000 exclusion).

Legislation enacted in 2008 modified the provisions affecting the exclusion of the gain. For sales or exchanges after December 31, 2008, a portion of the gain attributable to a period when the residence is not used as a principal residence will not be eligible for the exclusion. Periods of ineligible use prior to January 1, 2009, will not be considered.

Planning Suggestions: If you want to sell your principal residence but are unable to do so because of unfavorable market conditions, you can rent it for up to three years after the date you move out and still qualify for the exclusion. However, any gain attributable to prior depreciation claimed during the rental period will be taxed at a maximum 25% rate.

If you own appreciated rental property that you wish to sell in the future, you should consider moving into the property to convert it to your principal residence. You will need to live in the property for at least two of the five years preceding the sale of the property. As long as you haven’t sold another principal residence for the two years prior to the sale, a portion of the gain is excluded. Any gain attributable to prior depreciation claimed will be taxed at a maximum 25% rate.

The sale of a principal residence does not qualify for the exclusion if during the five-year period prior to the sale, the property was acquired in a tax-free like-kind exchange.

Retirement plans have many requirements regarding distributions, but taxpayers can exercise some authority over plan distributions that might facilitate income tax planning.

For instance, funds in a regular IRA can be accessed without additional early distribution penalties anytime after obtaining age 59½.

Therefore, anyone who would benefit from increased ordinary income in 2015 can take a distribution from regular IRAs. Once the IRA owner reaches age 70½, a minimum amount must be distributed from regular IRAs (Roth IRAs are not subject to any minimum distribution requirements) each year. The law allows, but does not require, a small delay of the first required minimum distribution until April 1 of the year after the attainment of age 70½. Therefore, if you reached age 70½ in 2015, you should evaluate the benefit of delayed tax liability on your first distribution compared with the spike in your 2016 taxable income that two distributions in 2016 could cause. Any failure to take the minimum required distributions (“MRDs”) before the annual deadline causes the IRA owner to owe a 50% excise tax on the amount that should have been distributed. Example: Individual reached age 70½ in 2015 and is required to make a minimum require distribution for the 2015 calendar year. This distribution could be made during 2015 based on the December 31, 2014, IRA balance but Individual waited until April 1, 2016, to take the required amount. Individual must also take a distribution by December 31, 2016, for the 2016 year based on the December 31, 2015, IRA balance, with certain adjustments. Therefore, individual is taxed on two distributions in 2016 which might result in an overall increase in income taxes.

Participants in qualified pension plans who are not 5 percent or more owners of the employer can delay taking distributions out of the plan beyond the minimum required distribution age of 70½ as long as they are still actively employed by the plan sponsor. If you are already receiving benefits, but have not yet retired, your plan may (but is not required to) allow you to stop receiving distributions until you retire.

If you received a taxable qualified retirement plan distribution that is not a part of a series of substantially equal payments over a specified period of ten years or more, over the life expectancy of the employee or over the joint life expectancies of the employee and the employee’s beneficiary, or does not satisfy the minimum required distribution rules, you can generally avoid immediate taxation by “rolling” the money into a regular IRA or other qualified plan. The rollover rules are utilized most often to move retirement funds between IRAs inasmuch as qualified plans are required to allow participants to elect a direct trustee-to-trustee transfer of distributions and to withhold a 20% income tax on distributions made directly to participants. Participants who elect to receive a plan distribution net of the required withholding will have to restore the funds from other sources in order to complete a tax-free rollover of 100% of the distribution. If 100% of the distribution is indeed rolled over within the 60-day timeframe required by law, the distribution is nontaxable but any overpayment of income taxes will be refunded only as a result of filing a Form 1040 for the year.

Example: Employee E retires at age 54 on January 1, 2015, and is entitled to receive a $100,000 lump-sum distribution from his employer’s profit-sharing plan. E does not elect a direct trustee-to-trustee transfer of his $100,000 to an IRA. At the time of the distribution, the employer must withhold $20,000 in federal income taxes from the distribution. E receives the remaining $80,000 on January 10, 2015, and transfers it to an IRA on January 11, 2015.

E will have $20,000 of gross income, unless he obtains $20,000 from another source and transfers it to the IRA by March 11, 2015 (within 60 days of receiving the distribution). The $20,000 will be refunded only after taking into account of all items reported on E’s Form 1040 for 2015. In addition, if E fails to transfer the additional $20,000 to an IRA, E will be liable for the ten percent early withdrawal penalty on the $20,000 because E was under age 55 (the minimum age for receiving penalty-free distributions upon a separation from service).

The adjusted gross income limitation that prevented many taxpayers from converting traditional IRAs to Roth IRAs is eliminated.

Prior to discussing conversions of regular IRAs and eligible employer plans we will first discuss regular annual contributions to Roth IRAs and the characteristics of a Roth IRA. Taxpayers with income under certain income limits are permitted to make contributions to a Roth IRA. Unlike regular IRAs, where contributions are deductible and later distributions are taxable, contributions to Roth IRAs are not deductible and later “qualified” distributions are not taxable. Qualified distributions are distributions made five or more years after the Roth IRA is established, provided the distribution is made after the account owner is at least age 59½, has died or become disabled or uses the money for a first-time home purchase, subject to a $10,000 lifetime cap. If the distribution is not qualified, a portion of the distribution may be included in gross income and may be subject to the 10 percent early withdrawal penalty. The penalty applies on the amount of the distribution that exceeds the taxpayer’s contributions to the Roth IRA. Roth IRAs are not subject to the MRD rules that apply to regular IRAs when the owner reaches age 70½.

For 2015 and 2016, taxpayers can contribute up to $5,500 to a Roth IRA (as long as you have compensation for the year at least equal to the contributed amount). Taxpayers age 50 or older can make additional contributions of $1,000. Thus, the limit is $6,500 a year for people who will be age 50 (or older) in the applicable taxable year. However, the maximum contribution allowance must be reduced by any other contributions (deductible or nondeductible) the taxpayer makes to IRAs.

For single and head of household taxpayers, and for married taxpayer filing separately who did not live together at any time during the tax year, if 2016 modified adjusted gross income is between $117,000 and $132,000 ($116,000 and $131,000 for 2015), the $5,500 maximum contribution is phased out. Modified AGI in excess of $132,000 ($131,000 for 2015) prevents a contribution to a Roth IRA for a single taxpayer. For married taxpayers filing jointly, no contribution can be made if AGI is $194,000 ($193,000 for 2015) or more, and the $5,500 maximum (per spouse) is phased out for AGIs between $184,000 and $194,000 ($183,000 to $193,000 for 2015). For married taxpayers filing separately who lived with their spouse at any time during the tax year, the allowable contribution is phased out for AGIs between $0 and $10,000.

As with regular IRAs, contributions to a Roth IRA may be made as late as the due date for filing your income tax return, excluding extensions. Thus, Roth IRA contributions may be made by most individuals for 2015 until April 15, 2016. Unlike regular IRAs, contributions to a Roth IRA may be made even if the taxpayer is over age 70½, and the taxpayer or spouse has earned income at least equal to the amount of the contribution.

If a taxpayer converts a regular IRA or eligible employer plan into a Roth IRA, the amount that must be included in the distributee’s gross income is the amount that would have been includible in gross income had the distribution not been part of a qualified rollover contribution. The entire taxable amount from a 2015 conversion must be recognized on the taxpayer’s 2015 income tax return. The converted amount is not subject to the 10% early withdrawal penalty, provided no distributions are made from the account during the five-year period after the initial conversion.

Establish a Simplified Employee Pension (“SEP”) Plan by the due date of your 2015 return, including extensions. The contribution to the plan must be made by that due date. For 2014 and 2015, the maximum allowable contribution to a SEP an employee can make independently of an employer is $5,500 ($6,500 if a catch-up contribution). However, the maximum combined deduction for an active participant’s elective deferrals and other SEP contributions is $53,000 for 2015 and 2016.

• Alternatively, establish a Keogh Plan in 2015, before December 31. The full contribution to the plan need not be made until the due date of your 2015 return, including extensions.
• Consider placing business assets in service in 2015. If qualified, Section 179 expense allows you to deduct the full cost of depreciable assets in the tax year they are placed in service subject to an expense level of $25,000 and the phase out threshold amount commences at $200,000 for 2015.
• For taxable year 2015, a taxpayer can deduct start-up expenditures up to $5,000 with the phase out threshold at $50,000.
• A self-employed individual generally may deduct the employer-equivalent portion of his or her self-employment tax in figuring adjusted gross income. This deduction only affects the taxpayer’s income tax. It does not affect net earnings from self-employment or self employment tax.
• 100% of medical and long-term care insurance premiums, subject to the limitations on long term insurance premiums paid by a self employed person are deductible from gross income to arrive at AGI.
• Effective for payments made on or after March 30, 2010, the Affordable Care Act allows the self-employed health insurance deduction to include an adult child who has not attained the age of 27 before the end of the taxpayer’s taxable year.

Planning Suggestion: If you are not eligible to make a Roth IRA contribution due to an income limitation, consider making a nondeductible contribution to a traditional IRA and then converting the entire balance to a Roth IRA. The conversion would be a fully nontaxable event if the conversion takes place immediately because the taxpayer would have basis in the full amount of conversion.

Planning Suggestion: It may be beneficial to convert an existing IRA into a Roth IRA even though income will be accelerated and taxes will have to be paid. The advisability of converting depends on various factors, including the age of the taxpayer, current tax bracket, whether the taxpayer has funds from other sources to pay the income taxes on the accelerated income and whether the taxpayer intends to withdraw funds from the account after age 59½, or after 70½. Two of the advantages of converting a regular IRA or eligible employer plan into a Roth IRA are avoiding the minimum distribution rules and avoiding income taxes on distributions after death to the beneficiary of the Roth IRA. Any decision to convert should also consider the estate tax effects.

Planning Suggestion: You may want to consider converting all or a portion of your traditional IRA to a Roth IRA if you have a net operating loss (“NOL”). You may be able to make a conversion without creating taxable income and make use of your NOL, especially if the NOL carryforward is due to expire soon.

Additional Planning: Regular IRAs can be converted to Roth IRAs. Roth IRA conversions for a year must be completed by December 31 of that year. You have until the extended due date of your return for the year of the conversion to recharacterize your Roth IRA back to a traditional IRA. You will treat the conversion as if it had never happened by recharacterizing it.

Deductible moving expenses are limited to the cost of moving household goods and personal effects, plus traveling (including lodging but not meals) from your old residence to your new residence. To be deductible, a taxpayer must satisfy a distance test, a length-of-employment test and a commencement-of-work test.

Moving expenses can be deducted “above-the-line” in computing AGI instead of as miscellaneous itemized deductions. Thus, these expenses are not subject to the various limitations applicable to itemized deductions and can be deducted in addition to itemized deductions or the standard deduction. Also, deductible moving expenses reduce AGI for purposes of calculating the various AGI-based limitations.