Year-End Tax Tips

November 10, 2017 / Article, Tax Planning
There is still time remaining in 2017 to take action that could potentially reduce your taxes.   Here are a few suggestions:

 

1. Contribute as much as possible to your 401K, 403B or other retirement accounts.     This will reduce your tax bill by reducing your taxable income.  If you are 50 or older you can contribute up to $24,000 ($18,000 for those under 50) to your 401K or 403B.  Depending upon your plan, it is possible that your employer will match a portion of your contribution.

Some taxpayers may be able to contribute up to $5,500 to a traditional IRA (individuals 50 and older can contribute $6,500) subject to certain income limitations with details available from the IRS, your CPA or financial advisor.

2. “Harvest” your investment losses. If you sell a losing investment and reinvest the proceeds in a similar (but not identical) investment, you can deduct the loss, reducing your income and tax, effectively “sharing your loss” with the IRS.  Since the stock market has been strong during 2017, this strategy might be difficult to accomplish this year.

3. Contribute to a charity.   If you itemize deductions, you can deduct charitable contributions as long as you have receipts and canceled checks.   If you contribute appreciated assets such as stocks you not only obtain a charitable deduction, but you also avoid a capital gain tax.  If you are over 70-1/2 you can donate directly from your IRA to a charity.  This will help keep your AGI (adjusted gross income) down (and perhaps not encounter taxes or penalties linked to your AGI or modified AGI such as Social Security taxes and Medicare surcharges.)  Contributing directly from your IRA will also minimize your State tax in states like CT which effectively do not allow deductions.

4. Be careful when making investments in mutual funds in taxable accounts before year-end.  Mutual funds are required to distribute gains they have made to their shareholders prior to the end of the year and are taxable to shareholders.   This may be a problem this year since many funds enjoyed good returns and may sell some of their winners.  If you contact the funds, many will tell you what their estimated capital gain distributions will be and the expected date they will be paid to help you avoid “landmines”.

5. Pay attention to “asset location”.   Stocks and stock mutual funds should preferably be in your taxable accounts since they receive favorable capital gains tax treatment if held over one year.   Bonds and bond funds are best held in your tax deferred accounts since all the income will treated as ordinary income, no matter where they are held.

Federal Tax laws are in the process of being changed, so you should consult your CPA or financial advisor if you have any questions or concerns.

 


About the author

John Eckel: CFP®, CFA is President of Pinnacle Investment Management Inc. of Simsbury. He has been included in BusinessWeek.com’s list of the Most Experienced Independent Financial Advisors, has been named four times to Worth Magazine’s list of Top Financial Advisors, included twice in Medical Economics list of Top Financial Advisors for Doctors and named twice in JK Lasers list of Top Professional Advisors for Baby Boomers.