Year-end tax strategy checklist

Now may be an ideal time to consider year-end tax strategies that may benefit you and plan for the year ahead. Please discuss any ideas and questions with your financial advisor.

General wealth management strategies — Offset capital gains and defer income

  • Harvest your losses by selling taxable investments, keeping in mind short-term losses are most effective at offsetting capital gains. Note: wait at least 31 days before buying back a holding sold for a loss to avoid the IRS wash sale rule.
  • Take your deductions this year (pay your 2015 Q4 state income tax payment, medical expenses, deductible interest, and alimony payments before Jan. 1, 2016).
  • Delay purchasing mutual fund shares until after Jan. 1, 2016 to avoid capital gains taxes on brand new investments.
  • Defer your year-end bonus, the sale of capital gain property, and receipt of distributions to delay income to the following year.
  • Increase your W-2 federal income withholding amount in preparation of a significant tax bill or to avoid the under-withholding tax penalty.
  • If you are subject to the Alternative Minimum Tax (AMT), or if you are close to being in the Alternative Minimum Tax, you should speak with your CPA or other tax advisor before implementing these strategies.

Retirement planning — Seize opportunities and avoid missteps

  • Avoid mandatory tax withholding by making a direct rollover distribution to an eligible retirement plan, including an IRA. If you are 50 or older, take advantage of catching up on IRA contributions and certain qualified retirement plans. Maximize your IRA contributions.
  • Convert from a Traditional IRA to a Roth IRA.
  • Avoid taking IRA distributions prior to age 59½, or a 10% early withdrawal penalty may apply.
  • Consider increasing your 401(k) and retirement account contributions.
  • Take your Required Minimum Distribution (RMD) if you are past the age of 70½.
  • Determine the optimal time to begin taking Social Security benefits, which you can apply for between ages 62–70. Explore taking employer stock under favorable tax rules.

Gifting — Give to loved ones and those in need

  • Gift up to $14,000 per individual in federal tax-free gifts.
  • Contribute to charities using appreciated stock in place of cash to reduce capital gains in your portfolio while generating an income tax deduction.
  • Give an outright charitable gift of cash for an immediate income tax deduction.
  • Set up a Donor Advised Fund for an immediate income tax deduction and provide immediate and future donor gifting to charity over time.
  • Set up a Private Foundation for an immediate income tax deduction and provide complete control over current and future charitable giving.
  • Make a will or trust bequest so that the estate can take both income and estate tax deductions.
  • If you are over 70½ in 2015 and would like to make a donation to charity from your IRA watch for end of year legislation, which may allow you to donate up to $100,000 under favorable tax provisions. The renewal of this legislation is not automatic, so check with your tax advisor before making this donation.

Planning for 2016 — Set yourself up for success in the upcoming year

  • Discuss major life events with your advisor, such as a marriages or divorces, births or deaths in the family, job or employment changes, and significant elective expenses (real estate purchases, college tuition payments, etc.).
  • Send capital gains and investment income information to your accountant for a more accurate year-end projection. Ensure your account paperwork, risk tolerance, and investment objectives are up to date with your advisor.
  • Revisit contribution amounts to your 529 Plan college savings accounts.
  • Review Medicare Part D plan and make any changes during open enrollment, which begins in October.
  • Double check your beneficiary designations and update as necessary.
  • Check your Health Savings Account contributions for 2015, and confirm you’ve spent the entire balance in your Flexible Spending Accounts.

Lauri Binius Droster is senior vice president and branch director of RBC Wealth Management and leader of The Droster Team, Madison office.

RBC Wealth Management does not provide tax or legal advice. We will work with your independent tax/legal advisor to help create a plan tailored to your specific needs. © 2015 RBC Capital Markets, LLC. All rights reserved.

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