Year-End Tax Planning Tips for Individuals

Year-End Tax Planning Tips for Individuals

The end of the year is often one of the few instances when a taxpayer considers tax saving strategies. Couple this with an environment in which the top individual tax rate could be reduced from 39.6 percent to 35 percent for some taxpayers, and it is imperative to be extra mindful of the value of tax deferral, and perhaps, even permanent tax savings.

The traditional tax planning strategies of deferring income and accelerating deductions are still the game plan. However, the potential tax rate arbitrage provides an opportunity for permanent tax savings for many individual taxpayers who find themselves in the top tax bracket.

The following is a list of some tax planning strategies that individual taxpayers should consider before year-end:

  • Accelerate charitable deductions.
  • Make qualified charitable distributions from Individual Retirement Accounts (IRA). An individual is allowed to direct up to $100,000 to an eligible charitable organization and have the distribution not be includible in gross income.
  • Convert Roth IRAs if the situation permits, and be mindful of the re-characterization rules.
  • Prepay state and local taxes, including anticipated balances due in April, as well as property taxes for the upcoming year.
  • Maximize contributions to retirement accounts, including 401(k), 403(b), and IRA accounts.
  • If you are self-employed, or you have self-employed income, consider setting up a retirement account before year-end, such as a Simplified Employee Pension Plan (SEP). Note that the account must be set up before year-end, but the contribution is not mandatory until the due date of your federal income tax return (including extensions).
  • Defer an employer bonus into the following year.
  • Harvest capital losses – evaluate your stock and mutual fund portfolios and identify holdings that are in a loss position, and no longer fit within your long term investment plan.
  • Make gifts sheltered by the annual gift exclusion. The exclusion applies to gifts of up to $14,000 ($24,000 for married couples) made in 2017 to each of an unlimited number of individuals.

This is not an exhaustive list, nor is every strategy advantageous to every taxpayer. It is important to evaluate your projected tax position before year-end so as to take the appropriate steps to capitalize on possible tax savings. It is also important to consider that tax rate reductions are only speculation until legislation is passed by Congress.

Brian D. Kitchen can be reached at bkitchen@kmco.com or 215.441.4600.

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