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Five Year-End Tax-Cutting Strategies

Five Year-End Tax-Cutting Strategies

As we hurtle down the path toward the end of the year, it’s smart to stop and consider what personal year-end planning you can do before the ball drops in Times Square.

There has been a lot of change over the past year regarding personal income taxes. As such, now is the ideal time to review both the potential opportunities and challenges now available, and the steps you may be able to take to address them. Some tax strategies lie in managing your income, while others focus on taking full advantage of deductions.

Here are five tax-shredding ideas to consider before year’s end:

1. Make charitable contributions. With all of the tax changes that have taken effect this year, charitable contributions remain one of the most effective itemized deductions. While contributions are subject to phase-outs due to income limitations, they are not affected by the alternative minimum tax (AMT). If your charitable dollars are material (over $x), consider donating appreciated stock to charity. This allows you a full market value deduction (subject to the phase-outs due to income limitations) for the value of the stock, and avoids any capital gains tax that would be due if you sold the stock. Stocks must have been held for at least one year to qualify.

2. Make retirement plan contributions. If you have self-employment income, consider establishing a Simplified Employee Pension (SEP) or individual 401(k) plan if you haven’t already, or adding to them. These plans don’t have the same income limitations as IRAs, plus you may be able to deduct up to $51,000 ($56,500 for individuals 50 and older) in a given year, depending on your earnings. If you’re an employee with a company 401(k) plan, there’s still time to salt away some cash in that tax-deferred plan.

3. Engineer your income. If you’re retired and haven’t yet reached age 70½ (the year in which you’re required to start tapping your retirement assets) consider the impact turning 70½ will have on your tax bracket. If you’re in a lower bracket today and expect it to rise as a result of future required distributions, consider your accelerating income now. Take a distribution from your IRA now to leverage today’s lower brackets.

4. Maximize that pre-70½ IRA distribution. If you plan to take an IRA distribution but don’t need the money for living expenses, considering depositing that amount into a Roth IRA. As you probably know, Roth IRAs offer permanent “tax freedom.” Earnings and appreciation on assets housed in a Roth IRA are forever free from tax, as are distributions from a Roth IRA. What’s more, unlike traditional IRAs, Roth IRAs are not subject to minimum distribution requirements. That means you can allow the account to grow tax-free for life. This makes the Roth a very effective estate-planning tool.

5. Take advantage of the 0% capital gains rate. Yes, it’s possible to sell securities at a gain and pay zero tax on the sale. While this rate is not available to the majority of taxpayers, there are circumstances when you can take advantage of it. Situations that might allow this opportunity include years where one is out of work or retirement years when income is low, perhaps before social security payments and IRA required minimum distributions begin. And while regular deductions such as medical expenses, real estate taxes, and charitable contributions still exist.

Of course, this short list is not intended to be a personal recommendation. Instead, it’s short guide to help you brainstorm possible options. As always, consult with your Wealth Advisor and/or your accountant before taking any of these steps, since your individual situation may make some of these strategies better for you than others.

 

 

Important Disclosure Information

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request. This presentation is not a substitute for personalized advice from RegentAtlantic. This information is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

Please remember that RegentAtlantic does not provide tax advice. Please consult with a tax professional of your choosing prior to implementing any of the strategies discussed in this article.

This information is based on RegentAtlantic’s current understanding of the tax code. Congress may change the code at any time.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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