Tax Planning for 2017

Make These Moves Now For 2017 Tax Planning

Proper tax planning is essentialSo far this year, it hasn’t been a very good one for proper tax planning by investors, and it’s doubtful if we will see any positive changes by the end of the year. China has been struggling with their economic slowdown and declining oil prices have hit us as well. Couple that with the US economy that is still floundering about because of inept policies from the current administration, and it’s no wonder investment portfolios have been hammered.

This type of news could ruin plans for a pleasant holiday season and toss you a few lemons as well. But as the old saying goes, turn those lemons into refreshing lemonade by making a number of financial moves before the end of the year.

  • If you have security losses, you can use them to lower your 2017 tax bill. Remember though, these must be securities that are in a taxable portfolio and not in an IRA or a 401(k) account. These losses can be used to offset other capital gains and up to $3,000 against other income. Be careful though, when you are “harvesting losses”, of the wash sale rules. Sometimes one of the stocks you are selling to take a loss, may have long term potential and you plan to buy it back. Be sure to wait at least 30 days until you do or you can’t deduct the loss on the sale.
  • If any of your traditional IRA’s have declined in value, this may be a good time to convert all or at least some of it into a Roth account. Talk to your financial advisor about this.
  • Deferring income is still a good idea. So far, there aren’t any significant changes to the tax code, and it’s doubtful if any will surface.
  • Accelerate expenses into 2017 as much as possible. Consider donating securities that have gone up in value to a charity. You get the value as a deduction and don’t pay tax on the capital gain.
  • Increase your 401(k) contributions to the maximum, if possible, to lower your taxable income. This is especially true for those who are high earners. The Medicare tax kicks in and affects not only the gross earnings but also investment income.
  • You should also consider gifting to reduce the possibility of exceeding the Federal estate tax exemption. For a single individual, the exemption is $5.43 million, however, there are about a dozen states that have much lower exemptions. New Jersey, for example, taxes estates that exceed $ 675,000 in value.
  • A single individual can make an unlimited number of gifts up to $14,000 to different individuals without filing a gift tax return or using the exemption.
  • For the past several years, Congress has renewed a certain tax benefit for senior citizens who are 70 1/2 years or older. This allows them to donate up to $100,000 from their IRA directly to a charity tax free. The amount transferred counted toward the amount of their annual required minimum distribution as well. Those who haven’t withdrawn their RMD for 2017 should wait a few more weeks to see if this benefit gets renewed again. If it doesn’t, be sure to make the required distribution before December 31 to avoid the 50% penalty on the amount that should have been withdrawn.

If you still have concerns about the estate tax for Federal or state, you can pay the college tuition bills for your grandchildren directly to the college. By paying the college directly, the amounts aren’t subject to the gift tax rules and you can exceed the annual $14,000 amount without paying a tax or reducing the exemption. This is a good tax planning move.

There are also other rules that permit you to put away five years’ worth of the annual $14,000 at one time, or $70,000, into a 529 Plan. A married couple can make a $140,000 contribution.

If you have a family member that has serious medical issues, you can pay those bills directly to the providers and bypass the gift tax rules.

By taking advantage of these tax planning rules, high net worth taxpayers can significantly reduce the value of their estate while they are still living and save taxes down the road.

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