Now is a perfect time to check for any remaining opportunities to help minimize your tax bill before 2017 comes to a close. There are many year-end tax saving strategies for you to consider.
At Perspective Financial Services, we take a proactive approach to minimize our clients’ tax bills through a variety of investment strategies. Selling a security in a taxable account at a loss and replacing it with another security of the same asset class can help offset some of your capital gains tax; this is referred to as tax loss harvesting. We also research mutual funds that may generate a capital gains distribution before making end of year purchases; this helps avoid unnecessary capital gains taxes on new investments.
There are additional things you can do, with the help of your financial planner. Here is a checklist of things to think about.
When possible be proactive about the timing of your income. This can make a significant impact on your tax bill.
- Defer a bonus or a sale of appreciated property to the following year when it becomes advantageous to avoid the income this year.
- Pay expenses this year, such as fourth quarter state income taxes or medical expenses. This helps especially when next year’s income will be less than this year.
- Increase your federal income tax withholding to soften the blow of a significant tax bill.
Take advantage of the vehicles that not only help you plan for the future, but give the added bonus of reducing your income taxes.
- Max out your IRA contributions, and take advantage of the catch-up if you are over 50 years old.
- If you are over 70 1/2 years old, or you have an inherited IRA, do not forget to take your required minimum distribution. The penalties are very steep if you do not.
If you are planning to gift money to family or charities, do so before the end of the year.
- Give $14,000 per individual annually in federal tax-free gifts.
- Make planned charitable contributions and take advantage of the charitable rollover provision if you are over 70 1/2 years of age.