Taxes

Tax Review and Planning

It may be time to start thinking about reviewing or devising a tax strategy. As you weigh potential tax moves between now and the end of the year, follow these tips for your tax plan:

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Designate time to plan

Effective planning requires a good understanding of your current tax situation, as well as a reasonable estimate of how your circumstances might change. The window for most tax-saving moves closes on December 31, so don’t procrastinate.

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Defer income to next year

Consider opportunities to defer income, particularly if you anticipate moving into a lower tax bracket. For example, you may be able to defer a year-end bonus or delay the collection of business debts, rents, and payments for services to postpone payment of taxable income until the next year.

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Accelerate deductions

Identify opportunities to accelerate deductions into the current tax year by itemizing deductions or making payments on deductible expenses.

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Factor in the AMT

If you’re subject to the alternative minimum tax (AMT), traditional year-end maneuvers such as deferring income and accelerating deductions can have a negative effect. Taking the time to determine whether you may be subject to the AMT could help avoid costly mistakes.

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Maximize retirement savings

Deductible contributions to a traditional IRA and pre-tax contributions to an employer-sponsored retirement plan such as a 401(k) can reduce your taxable income.

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Take any required distributions

Deductible contributions to a traditional IRA and pre-tax contributions to an employer-sponsored retirement plan such as a 401(k) can reduce taxable income, so consider contributing the maximum allowed amount allowed by year-end.

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Weigh year-end investment decisions

While it’s not advisable to let tax considerations drive your investment decisions, it’s worth considering the tax implications of any year-end investments. For example, if you have realized net capital gains from selling securities at a profit, you might avoid being taxed on some or all of those gains by selling losing positions. Any losses over and above the amount of your gains can be used to offset up to $3,000 of ordinary income ($1,500 if your filing status is married filing separately) or carried forward to reduce your taxes in future years.

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Beware the net investment income tax


Don’t forget to account for the 3.8% net investment income tax. This additional tax may apply to some or all of your net investment income if your modified adjusted gross income (AGI) exceeds $200,000 ($250,000 if married filing jointly, $125,000 if married filing separately, $200,000 if head of household).

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Get help if you need it

There’s a lot to think about when it comes to tax planning. That’s why it often makes sense to talk to a tax professional who is able to evaluate your situation and help build your tax strategy.

Download a Blueprint for Tax Planning

Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material is not intended or written to provide and should not be relied upon or used as a substitute for tax or legal advice. Information contained herein does not consider an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Clients are urged to consult their tax or legal advisor for related questions.

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