Year End Tax Strategies

Contribute to Your 401(k) or other Qualified Plans

Not only do you want to build wealth for retirement, but you also gain a tax break by contributing to your employer’s retirement plan (or Individual 401(k) if you’re self-employed). Unfortunately, there is a cap on contributions each year. For 2017, the 401(k) limit is $18,000 for those under the age of 50 and $24,000 for those ages 50 and over. Additional contributions can be made with the “lifetime catch-up” with a 403(b) and a “double-limit catch-up” with a 457(b). Contributing to your retirement plan reduces your adjusted gross income (AGI), which can reduce your income tax rate and potentially avoid investment surtaxes.

  Deadline December 31st.

Contribute to Your IRA

Contribute to an IRA if your employer does not offer a retirement plan – consider a Traditional or Roth IRA. The 2017 contribution limit on IRAs is $5,500, with an additional $1,000 catchup for taxpayers 50 and older. With a traditional IRA you can likely deduct your contributions, though your deduction may be limited if your spouse participates in an employer-sponsored plan.

Deadline Tax Filing.

Donating Appreciated Securities

Charitable Contributions are an itemized deduction reported on Schedule A of your federal tax return. In any given year, you are allowed to deduct contributions worth up to 50% of your adjusted gross income (AGI). In certain cases, 20% and 30% limits apply. If you exceed the limit, your excess contributions can be carried over for up to five subsequent tax years.
When donating appreciated shares that you’ve held for more than one year, you not only benefit from the tax deduction for the charitable contribution, you also avoid the unrealized gains on the appreciated shares. For assets donated to a charity, the deduction is equal to the fair market value of the donated assets. That means you are able to deduct the full value of the asset even though it exceeds your cost basis. It also means you won’t be taxed on the unrealized capital gain of the asset.

Deadline December 31st.

If you’re 70½ or older, you can transfer your 2107 RMD to charity at any time. The donation counts as your required minimum distribution but doesn’t increase your adjusted gross income (AGI). Keeping some or all of your RMD out of your AGI could help you avoid the Medicare high-income surcharge or help make less of your social security benefits taxable. However, when donating your RMD to a charity, you cannot itemize the amount in which you donated (You can’t double-dip which can be helpful if you don’t itemize and can’t double-dip tax breaks and deduct the charitable contribution if you make a tax-free transfer to charity).

The money needs to be transferred directly from the IRA to the charity in order to be tax free. If you withdrawal the money from the IRA first and then give it to the charity, you can deduct the gift as a charitable contribution (if you itemize), but the withdrawal will be included in your AGI.

Deadline December 31st.

Contribute to Your 529

For 2017, the maximum contribution per person, per beneficiary, to a 529 higher education savings plan is $14,000. There is a special five-year pull-forward rule, allowing you to contribute $70,000 in a single year, per owner, per beneficiary. Funding your 529 also provides valuable estate planning benefits, as contributions and growth on those contributions are exempt from income and estate taxes.

Deadline December 31st.

HSA Contributions

If you are eligible to make health savings account (HSA) contributions in December of this year, you can make a full year’s worth of deductible health savings account contributions for 2017. This is so even if you first became eligible on December 1, 2017. The maximum annual contribution to an HSA for 2017 is $3,400 for self-only and $6,750 for family coverage. If you are over the age of 55, you can contribute an additional $1,000 to your HSA. The contribution limit increases in 2018 for self-only coverage to $3,450 and for the family coverage to $6,900.

Funds set aside in a health savings account (HSA) have a triple tax benefit. Contributions are tax-deductible when going into the HSA, earnings grow on a tax deferred basis, and distributions are tax-free when coming out the HSA for medical expenses.

Deadline Tax Filing.

Tax Loss Harvesting

Capital gains and losses are classified as either short-term (less than one year) or long-term (more than one year). Long-term losses can only offset long-term gains, and vice versa. Selling securities you have held for more than one year generates a 15% or 20% capital gains tax rate (based on your income). We continually monitor your portfolio throughout the year in order to keep you in line with your model portfolio (according to your risk profile) by rebalancing your portfolio in order to allow capitalism to work in the most efficient manner. However, this will generate capital gains in a bull market… A strategy that we can implement for you at the end of the year is called tax loss harvesting which is selling a security at a loss and buying a security within the same asset class in order to keep your portfolio in-line with your risk profile and offset capital gains for tax purposes.

Deadline December 31st.

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