Year-End Planning – Are You Ready for 2018?

Year-End Planning – Are You Ready for 2018?

With the beginning of November this Wednesday, 2017 is quickly coming to a close. Are your finances ready for end of year? Before you get swept away in the hustle and bustle of the holidays, here are some ideas to get a head start on your year-end planning.

Charitable/family giving

Have you made all of your desired gifts for 2017? This year, you can give $14,000 ($28,000 for couples) per recipient without gift taxes or reporting requirements. It’s time to put on your Santa hat and get generous!

Want to support the education of minor children or grandchildren? The IRS allows you to frontload up to 5 years of gifts, or $70,000 ($140,000 for couples), into a 529 plan account for each beneficiary.

And don’t forget about charity. To maximize your giving, you may consider donating highly appreciated securities. Not only does this prevent capital gains taxes, but you may also receive the full market value as a tax deduction—a double tax win! Do you own any complex assets, such as private stock, hedge funds or real estate? Giving complex assets can be a powerful, tax-efficient way to support your favorite causes.

Clean up your taxes

We can’t escape taxes; as Benjamin Franklin said, “In this world nothing can be said to be certain, except death and taxes.” While you can’t avoid taxes, you can certainly prepare for them.

Have you done any tax planning for 2017?  There may be strategies to lower your bill to the IRS—such as harvesting tax losses and charitable donations—that must be completed by December 31st.

Here are some strategies to consider. We recommend contacting your CPA or tax preparer to review your current tax situation and see what last-minute changes make sense for you.

  • Tax-loss harvesting: Have any positions performed more poorly than you hoped? Turn your loss into a tax savings by realizing the loss for 2017. After selling, wait 30 days to repurchase the position to avoid a wash-sale violation, which invalidates your loss.
  • Tax-gain harvesting: Few people are aware that you can harvest tax-gains as well. In years with abnormally low income or realized losses, you can sell profitable positions to “harvest your gains” and increase your cost basis for future years.
  • Charitable giving: Had unusually high income or a large capital gain in 2017? You can offset part or all of your extra tax bill by giving to a qualified charity. One great strategy is donating a few years’ of charitable gifts to a Donor-Advised Fund (DAF). The DAF gives you a full tax deduction for this year and the flexibility to defer naming a charity until later. Please note, a DAF charges administrative fees and may charge brokerage fees to liquidate donated securities.
  • Roth IRA conversion: Had unusually low income or a large capital loss in 2017?  You may want to consider converting your Traditional IRA into a Roth IRA to grow the funds tax free.

Employer plans

Have you maxed your 2017 401(k) contribution? Unlike IRAs, which allow you to make previous year contributions up until tax-filing day, 401(k)’s require all contributions to be in before year end. Check with your HR department to see if your company matches contributions. This match is extra money that you “leave on the table” by not contributing.

Does your employer offer a health savings account (HSA) or flexible spending account (FSA)? A contribution to your HSA can lower your tax bill. One the other hand, any unused balance in your FSA may be lost if not used before end of year. Again, contact your company’s HR department to determine what rules apply in your situation.

Required minimum distributions

Have you taken your 2017 required minimum distributions (RMDs) from all Traditional IRA, 401(k), and other qualified retirement accounts? Unless this is your first year, your RMD is due no later than December 31st. For the charitably-minded, don’t forget that up to $100,000 of your RMD may be satisfied income tax free through a qualified donation.

Did you inherit an IRA or 401(k) from someone other than your spouse? If so, you must either begin yearly distributions by December 31st of the year after the original account holder passed away or withdraw the entire balance within 5 years. But be careful—while a Roth IRA in your name doesn’t have an RMD, you must take distributions from your inherited Roth IRA.

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