Don’t Miss Out on These Year-End Tax Planning Strategies

Now is the ideal time to start year-end tax planning.  Below you will find a variety of tax-saving strategies you should consider using immediately so that you can get your 2016 tax house in order well in advance of the fast-approaching holiday season.

Plan Now for a Bountiful Fall Harvest

The last thing you want to worry about during the holiday season is tax planning.  Now is the perfect time to discuss the following tax-saving opportunities with your financial team so that you can implement them in the next few weeks:

  • Check your portfolio to determine which dud stocks can be sold to harvest losses and offset gains.
  • If you’re in the 25% or higher marginal federal income tax bracket and own mutual funds in taxable accounts, check your mutual fund company’s website for projected capital gains distributions during November or December. Given seven strong years for many funds, coupled with any 2016 investor defections, the distributions could be surprisingly large for some funds. You should consider selling before the ex-dividend date and moving to a similarly allocated but more tax-efficient vehicle like an exchange-traded fund (ETF).
  • Analyze your 2016 vs. 2017 projected tax liabilities and accelerate or decelerate income and capital gains accordingly.
  • Maximize contributions to your 401(k) and IRAs – if you are age 50 and over you should take advantage of the extra $1,000 (for an IRA) or $6,000 (for a 401(k)) you can contribute to your accounts in 2016.
  • Wipe out that Flexible Spending Account by incurring medical expenses.
  • Purchase an electric car.
  • Install a renewable energy source in your home such as a solar-powered water heater.
  • Refinance your mortgage.
  • Make an extra mortgage payment or two.
  • Pay estimated state and local taxes and property taxes.
  • Review and adjust your withholding and estimated tax payments to insure that you avoid underpayment penalties.
  • Determine if your traditional IRA should be converted to a Roth IRA.
  • If you are the Trustee of an irrevocable trust, you should consider whether it is appropriate under the discretionary terms of the trust agreement to disperse distributable net income (DNI) to beneficiaries in lower tax brackets.

Beware:  What may be tax-advantageous for one taxpayer may be tax-detrimental for another.  For example, the Alternative Minimum Tax (AMT) is snagging more and more taxpayers and reducing regular tax liability may increase AMT exposure.  Thus, before making any year-end tax moves, you must consult with your financial team to insure that the moves you make are the right ones.

Plan Now for an Early Gift-Giving Season

Below are some gifting ideas you can use now to benefit family, friends, your church, your alma mater or those in need:

  • Make cash gifts to family and friends – in 2016 the maximum amount an individual can give without incurring a gift tax is $14,000, married couples can give $28,000.
  • Make cash gifts to non-profit organizations.
  • Donate appreciated assets, such as stock or real estate, to non-profit organizations.
  • Set up a donor-advised fund.
  • Supercharge a 529 plan for your children or grandchildren –individuals can contribute $70,000 and couples can contribute $140,000 to a plan without incurring any gift tax; in addition, some states offer tax deductions or credits against 529 contributions.
  • In this low interest rate environment, inter-family loans are worth considering and can be a powerful tool to transfer wealth without incurring any gift or estate tax.
  • If you are considering any advanced gift planning, such as gifting through a grantor retained annuity trust (GRAT), family limited liability company or private foundation, then time is of the essence to get the trust or entity created, funded and initial gifts made before December 31.
  • If you have used up your entire lifetime gift tax exemption in prior years, note that you have gained an extra $20,000 (or $40,000 per married couple) to gift in 2016.
  • If you have an IRA and are over age 70½, need deductions and are charitably inclined, you can donate up to $100,000 from an IRA and exclude the donation from taxable income.

Begin Year-End Tax Planning Right Now

Ideally tax planning should be done throughout the year, but unfortunately most people do not even start thinking about their tax situation until late into the fall.  Doing nothing at all will leave less in your pocket and planning done at the eleventh hour may end up sloppy and incomplete.  We encourage you to consult with your financial team now so you can insure that you are taking full advantage of all appropriate year-end tax saving opportunities.

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