As 2017 comes to a close, we are actively discussing the following year-end planning and tax tips with our clients. Year-end tax planning must take into account each taxpayer’s unique situation and goals. Please consult with your tax adviser to devise a tax-saving plan that most effectively meets your needs and takes into account the latest tax rules.
Donating to charity can be a fantastic tax-savings strategy since you are in control of when and how much you give. Consider a charitable IRA rollover, which has only become available in the last few years. This allows clients over 70 ½ to donate up to $100,000 per year to a charity directly from their IRA and avoid paying taxes on the distribution. The charity benefits from the donation and the individual satisfies their Required Minimum Distribution (RMD).
Clients who would like to donate to charity and expect to be in a lower tax bracket next year may want to consider contributing future charitable gifts through a Donor Advised Fund (DAF). A DAF is a philanthropic vehicle established for donors who want to make a charitable contribution and receive an immediate tax benefit. A donor contributes to the fund as frequently as they want and then grants to their charity of choice when they are ready. Clients should consider making the contribution to the DAF in mid-December so that their donation may be deducted in the 2017 tax year.
Gifting to Non-Charitable Entities
The IRS allows each person to give $14,000 to each non-charitable beneficiary such as non-spouse family members every year. This annual limit does not accrue into future years if it’s not utilized. In addition, the annual exclusion, individuals can give up to $5.49 million over a lifetime before owing gift taxes. For gifts to 529 plans, the IRS allows 5 years of annual gifting to be accelerated for a total of $70,000 upfront.
If you expect to be in AMT next year but are not in AMT in 2017, consider accelerating deductible expenses to get higher 2017 write-offs. You could pre-pay state income taxes and real estate taxes before year-end. In this example, pre-payment would prevent an AMT situation next year from reducing the benefit of these deductions.
Trump’s future moves are uncertain, but if you believe that congress will lower taxes in the future, it may make sense to accelerate deductions into 2017.
Tax Loss Harvest
Though important at the end of the year, we believe tax loss harvesting should be done throughout the year for the most impact. This strategy encompasses selling a security at a loss to offset capital gains tax liability. Through opportunistic tax loss harvesting, you may increase returns indirectly and ultimately defer capital gains to a time when the assets need to be liquidated.
Disclaimer: Callan Capital does not provide individual tax or legal advice, nor does it provide financing services. Clients should review planned financial transactions and wealth transfer strategies with their own tax and legal advisors. For more information, please refer to our most recent Form ADV Part 2A which may be found at www.adviserinfo.sec.gov.
The tax information provided in this document is for general informational purposes only—it is not meant to be used, and cannot be used, by individuals to avoid federal, state or local tax penalties. Taxation varies depending on an individual’s circumstances, tax status and transaction type; the general information provided in this guide does not cover every situation—for complete information on your personal tax situation, you should always consult with a qualified tax advisor.