By David Guttery
Special to The Advertiser
As the year draws to a close, I thought it would be helpful to write about some commonly used tax-planning tactics that I’ve employed with clients over the years. I’d like to preface the following comments by strongly suggesting that you should consult with your tax advisor before adopting any of these strategies, to ensure that they’re suitable for your situation.
Sometimes, it can be beneficial to sell these positions and recognize the loss so that you can also sell an offsetting position in a security within which you have short or long-term capital gain.
In the event you have no gains against which to deduct the losses, then losses are limited to $3,000 and any overage can be carried forward into future years. Otherwise, losses offset at least as much capital gain.
Maximize qualified plan and deductible IRA contributions. For 2017, you may defer up to $18,000 into a 401(k), and if you’re over 50, you have a $6,000 catch up provision that would allow for a combined deferral of $24,000. Check with your plan administrator to determine if you have room, and the ability, to make contributions to the plan which would maximize your pre-tax deferral limits before Dec. 31.
For IRA accounts, you have until April 17, 2018, to maximize deductible contributions for 2017. If you’re younger than 50, and not subject to a phase out, then you can deduct $5,500. If you’re 50 years of age or older, then your limit is $6,500.
Mutual funds are commonly used investment tools. However, investors should be careful when purchasing new shares of mutual funds within non-qualified brokerage accounts as the year draws to a close.
Very often, mutual funds can declare relatively large distributions of dividends, short, and long term capital gains at the end of the year. If you’ve purchased new shares of a non-qualified mutual fund just before such distributions are declared, then you will receive them and incur the tax upon them, in the last month of the year. So my advice is to research any year ending purchases for such pending activity before accidentally locking into a potential tax liability.
Charitable contributions are a fantastic way to be of benefit to others, and yourself at the same time. Generally, up to 50 percent of your adjusted gross income can be deducted when given to a public charity, and certain private foundations. In other circumstances, contributions may be limited to 30 percent or 20 percent of your adjusted gross income depending upon the nature of the entity receiving the gift.
Flexible Spending Accounts are wonderful tools that allow individuals to meet certain out of pocket health care costs, with pre-tax dollars.
However, participants must be mindful that all money contributed to such FSAs must be spent before the end of the calendar year, or the residual balance is lost. Therefore, I always recommend that clients evaluate the balance that might exist around the first of December within such accounts, relative to their known expenditures in the month of December. If it appears that you might not have enough to claim against that balance, then consider refilling January’s prescription early, or buying extra sets of contact lenses if you use them, in order to make use of that money by the end of the year.
Non-Qualified Deferred Compensation plans are sometimes offered by employers, and if you qualify, it can provide you with an opportunity to defer taxable income on a pre-tax basis.
Earnings will also accumulate on a tax deferred basis. If you haven’t already done so, it may be advantageous to consider this as a method of reducing your current year tax liability through the deferral of income. Again, there are many factors to consider with such plans, and you should first consult with a tax advisor to make sure that such is suitable for your situation.
(*) = Securities products are subject to investment risk, including possible loss of principal. Before investing, carefully consider the investment objectives, risks, limitations, charges and expenses of the product and any underlying investment options. This information can be found in the prospectuses or offering statements. Please read carefully before investing.
David has been in practice for 27 years, with a distinctive focus on the management of retirement assets for the production of durable income. David R. Guttery, RFC, RFS, CAM, is an Investment Advisory Representative of Ameritas Investment Corp, and President of Keystone Financial Group, in Trussville, Alabama. David independently offers securities and investment advisory services through Ameritas Investment Corp. (AIC) member FINRA/SIPC. AIC and Keystone Financial Group are not affiliated. Additional products and services may be available through David R. Guttery or Keystone Financial Group that are not offered through AIC.
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