As 2015 comes to a close, we are actively discussing the following 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 to a charity directly from their IRA. The charity benefits from the donation and the individual satisfies their Required Minimum Distribution (RMD). This is yet to be approved for 2015 but, over the last few years, Congress has retroactively approved this toward year-end.
Clients who would like to donate to charity, are in a high tax bracket this year and expect low income in 2016 may want to consider front-loading 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 early to mid December so that their donation may be deducted in the 2015 tax year.
If you expect to be in AMT next year but are not in AMT in 2015, consider accelerating deductible expenses to get higher 2015 write-offs. You could pre-pay state income taxes and real estate taxes before year-end. Thus, AMT would reduce the benefit of these deductions next year.
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.