Year-End Tax Planning

Tax planning is important stuff.  Not as exciting as the markets, but saving money on taxes can be more exciting than you think.  The beginning of October means we are in the 4th Quarter…and the countdown begins to year-end. The following is a handy Tax Planning Checklist.*  Some of these items, if done now, could make a big difference to your 2017 tax situation AND add to your savings.

calculator1: How are you doing on maxing out your 401k?  If you were on track for saving 5-10% of your gross income and that dollar amount will be less than the max of $18,000 (or $24,000 if you are age 50 or over) then you can temporarily increase the amount you are contributing through December 31st.  Lots of 401k or 403b plans allow you to contribute 25-30% of your pay…. or even 100% and then revert to the lower contribution percentage on January 1st of next year.

These 401k contributions are tax-deductible (unless you are contributing to a Roth 401k) and can reduce your taxable income while also increasing your savings!  It is not too late!

2: For those of you who have already maxed out your 401k for this year (great job!), think about contributing the same dollar amount that you were contributing to the 401k per paycheck to another savings vehicle through the end of the year…like to your vacation fund, emergency fund or kids’ college funds.  You can also contribute to a non-deductible IRA up to $5,500 (or $6,500 for those age 50 and over).

3: Don’t have a 401k?  Then you can contribute to a tax-deductible IRA. You have until April 15th of next year to make the contribution.  The $5,500 and $6,500 max amounts apply.

4: For non-working spouses who do not get to contribute to a 401k, you can contribute to a separate IRA for him or her until April 15th of next year; this is called a “spousal contribution” to an IRA and IS tax-deductible.  The $5,500 and $6,500 max amounts apply.

5: Are you Self-Employed?  How many employees do you have (if any)?  You may be able to contribute to a SEP-IRA.  SEP contributions are tax-deductible to you or your business, can be as high as $54,000 (or 25%/20% of compensation/net earnings), and can be done as late as September of NEXT year or when you file your business tax return.

6: “Tax loss selling”. Check with your financial adviser if there are investments in your non-IRA accounts that have losses.  These capital losses can be “realized” (meaning the investment is sold for a loss) and the losses used to offset the capital gains in your portfolio and can also be carried forward indefinitely.  This needs to be done by December 31st.  (Check with your tax adviser as well.)

7: If you have an Inherited IRA then you most likely need to take an “RMD” (Required Minimum Distribution) from the IRA by December 31st of this year.  Ask me about this.

8: If you are over 70½, you are required to take your RMD from your IRA, 401k or pension (or other annuity) by December 31st as well.

For all of these items — and more — there is still enough time remaining in 2017 to accomplish valuable tax-deductions and/or to create new savings vehicles that you may not have imagined!

Please ask me for additional ideas and strategies, especially for those who are self-employed or if your income is much higher (or lower) than last year.  And always consult with your tax adviser on these items as well.

*Always consult with a CPA for tax advice and planning.


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