Money Matters

The Most Wonderful Time of the Year….Tax Planning Time!

15 Nov 2016 by: jhurley 

With the holidays in sight, it is not likely that you are focusing on tax planning now. However, with the end of 2016 quickly approaching, NOW is the time to take advantage of as many tax saving strategies as possible before year end to lessen your tax bill by next April 15.

The following is not an exhaustive list of tax reduction strategies; however, here are several of the areas to review with your tax professional and investment advisor before year end.

Retirement Plan Contributions

IRA’s- If eligible, you can contribute pre-tax dollars to a traditional IRA all the way up to April 17, 2017.  The 2016 contribution limits are $5,500 per individual and $6,500 for taxpayers over the age of 50. The deductibility phases out over certain income levels, depending on your filing status and if you or your spouse are covered by an employer-sponsored retirement plan. Also people over 70½ that have earnings, cannot make IRA contributions.

SEP-IRA/Solo 401k plans- If you are self-employed, have your tax professional compute what the tax savings would be from funding either of these kinds of plans.  Be sure to adopt the solo 401k plan prior to year end, even though funding of your 2016 contribution can occur as late as October 15 of 2017, if you file a filing extension for your 2016 returns.  This funding timing is identical for an SEP-IRA which can be set up by April 17, 2017.

Timing of Income and Deductions

Accelerating or postponing taxable income and tax deductions- Timing is everything. Your tax professional can guide you on whether to pull income into 2016 or postpone taxable income until 2017, based on your overall tax situation.  The same question applies to itemized deductions, e.g. accelerating your 4/10/17 real estate tax payment into 2016.

Putting Capital Losses to Work

Harvesting Tax Losses in a taxable investment portfolio- If possible, try to avoid short term gains as these are taxed at ordinary income tax rates, versus long term capital gains which are taxed at the lower capital gains rates.  If an investment has had a great run and is ripe for selling, try to find losses you would be better off liquidating to cover as much of the gain with these losses.  Keep in mind that taking capital losses before capital gains is beneficial, as unused losses can be carried forward for use in future years; capital gains must be reported in the year they are realized.

CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
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