Tax Day is fast approaching, and you've already missed the deadline for making some of the best moves to lower your taxes for the 2016 tax year. The IRS doesn't allow you to make retroactive donations to charities, for example. And if you didn't already sell some of your losing stocks before Dec. 31, then dumping them now won't lower your taxes this time around.
However, there are still some steps you can take to ease your 2016 tax burden. Here are three tax breaks that should be especially lucrative if you're wealthy.
1. Maximize retirement accounts
If you haven't already put the maximum allowable amounts into your retirement accounts, there's still time. The IRS allows you to count contributions toward the 2016 tax year for individual retirement accounts (IRAs) through April 17, 2017. You can contribute a maximum of $5,500 per year if you're under age 50 and $6,500 if you're aged 50 or older.
Remember that your spouse can also make these maximum IRA contributions. If you're married and file a joint return, fully funding your spouse's IRA account can help lower the amount of taxes you owe.
What about 401(k) plan contributions? Employees must formally elect contributions by the end of the tax year, so it's too late to put more money into your 401(k) plan for the 2016 tax year. However, if you're self-employed and have a 401(k) plan, profit-sharing contributions can still be made. The maximum deduction for the profit-sharing contributions is 25% of income subject to self-employment tax unless you're a Schedule C sole proprietor, in which case the maximum is 20%.
2. Investment-related expenses
There are several investment-related expenses that could get you tax breaks. For example, fees for investment advice and subscriptions to financial publications should be deductible. Even the cost of traveling to your broker's or investment advisor's office could qualify for a tax break. Note, however, that trading commissions, costs for attending shareholders' meetings, and investment advisory fees for tax-exempt investments aren't allowed as tax deductions.
Interest paid on money that you borrowed for investing in 2016 is generally tax-deductible. If you used margin to buy stocks, any interest paid could potentially be written off. If you borrowed against your home equity to make an investment, the interest wouldn't be deductible as mortgage interest, but it could be deductible as investment interest.
There are a few restrictions, though. Only interest in investments that will produce taxable income or that should appreciate in value is tax-deductible. For example, you can't claim interest on a loan used to buy tax-exempt bonds, because the income wouldn't be taxable. Also, you can't deduct more in investment interest than you actually made in investment income during the year -- although any excess investment interest can be carried forward to the next tax year.
3. Rental property expenses
Many wealthy Americans own rental property. If you're in this group, don't overlook several tax breaks that could be available to you.
Depreciation is one major type of tax deduction that rental property owners can claim. Maintenance expenses that are required to keep the property in good working condition (but don't add to the value of the property) can be deducted. Also, operating expenses can be tax-deductible. These include fees charged by contractors such as groundskeepers, accountants, and attorneys.
It gets more complicated if you own a vacation home that you also rent out. In this scenario, you'll have to divide your total expenses between the rental use and your personal use based on the number of days used for each purpose.
Not just for the rich
While these tax breaks help wealthy individuals, they can also benefit many Americans who wouldn't consider themselves rich. Maximizing retirement accounts is a great tax idea for anyone. It's also smart from a retirement planning perspective. Some not-so-wealthy individuals also borrow money for investment purposes. Some own rental property as well.
The important thing is to take advantage of every opportunity legally available to reduce your tax burden. Every dollar you keep is a dollar you can put toward your financial future.