Year End Planning: Part 1, Tax Tips

Taxes may be one of the largest expenses an individual or family faces throughout the year. But with some planning, you can potentially owe less to the IRS and increase your overall financial health. As always, please consult a tax advisor for more information.

1. Consider annual gifting for estates exceeding or expected to exceed the lifetime gift exclusion of $5,340,000 for single individuals and $10,680,000 for married couples, which adjusts with inflation. Under the current law, individuals may gift up to $14,000 per year per person per year ($28,000 for married couples) without having to pay gift tax or utilize their lifetime exclusion. Additionally, payments made directly to an educational institution or medical provider for qualified medical expenses are not subject to the gift tax and may exceed $14,000, in accordance with Internal Revenue Code §2501.

2. Gift appreciated securities to charity. An individual avoids paying the capital gains tax on the position, and can also use the income tax deduction to mitigate tax liability, in accordance with Internal Revenue Code §2501.

3. A partial or full Roth conversion may make sense, but know the facts first. A Roth IRA conversion can be advantageous for individuals with large traditional IRA accounts who expect future tax bills to stay the same or grow at the time they start withdrawing from their tax-advantaged account, as a Roth IRA allows for tax-free withdrawals of qualified distributions. When you complete a Roth conversion, you pay federal income taxes on the amount converted. Additionally, you can also change your mind and reverse the process through “re-characterization”, which may make sense if the value of the account has dropped, in accordance with Internal Revenue Code §408A.

4. Tax loss harvest. Though important at the end of the year, in our opinion, it should be done throughout the year for the potentially highest impact. Essentially, this strategy encompasses selling securities at a loss to offset capital gains tax liability. Through opportunistic tax loss harvesting, you may increase your returns indirectly and ultimately defer capital gains to a time when the assets need to be liquidated.

Disclaimer: *Information is as of November 18, 2014. 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. Callan Capital outsources to lending and financial institutions that directly provide our clients with, securities based financing, residential and commercial financing and cash management services. For more information, please refer to our most recent Form ADV Part 2A which may be found at

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