“Surprises are for birthdays. Not for tax time”®
Overview:
- Having your tax preparer do a tax projection prior to year end allows you to take timely proactive tax optimization moves.
- Knowing your marginal tax rate impacts many important decisions like acceleration of deductions or deferring income.
- Invest in tax-optimized investments wherever appropriate.
- Ensure that where appropriate, assets generating high taxable income are placed in a retirement account.
- Check that assets are titled correctly and in the name of your living trust.
Identify available opportunities to minimize taxes:
- Estimate projected income and deductions for the year to determine your marginal tax bracket.
- If a low tax bracket applies, consider accelerating income and deferring deductions to next year.
- Be aware of important tax-related income thresholds.
- Harvest tax losses to offset capital gains.
- Donate appreciated assets to a charity to avoid capital gains.
- Contribute to retirement accounts or Health Savings Accounts (HSAs) to reduce taxable income.
- Accelerate deductions into this tax year if planning to itemize deductions.
- Consider an installment sale for large transactions.
- If expecting a net operating loss (NOL) from a business, consider a Roth IRA conversion.
Focus on retirement planning priorities:
- Maximize retirement savings including catch-up contributions if age 50 or older.
- Remember to take Required Minimum Distributions (RMDs).
- Monitor the percentage of funds withdrawn from retirement accounts.
- Evaluate retirement savings to determine if saving in traditional, pre-tax retirement accounts.
- Consider a Roth IRA conversion.
- Avoid penalties on early withdrawals from retirement accounts.
- Plan for the 10-year rule applying to inherited retirement accounts.
Understand options for charitable giving:
- Make charitable gifts before the end of the year to lower taxable income.
- If over age 70 ½ donate to charities from your IRA.
- Use a Donor Advised Fund (DAF) to time a charitable tax deduction.
- Lump several years of charitable gifts into one year to itemize deductions.
- Obtain necessary documentation on donations for tax purposes.
Create a legacy for family members:
- Utilize the annual gift tax exclusion before the end of the year.
- Make sure important documents (e.g., wills, trusts, powers of attorney) are in place and up to date.
- Review beneficiaries listed on retirement accounts.
- Consider strategies to transfer wealth utilizing the lifetime gift/estate tax exclusion.
- Make gifts into 529 college savings plans.
- Establish Roth IRAs for younger family members.
IMPORTANT NOTE:
May contain errors or omissions and should not be relied on for making any decisions. It is general in nature and may not apply to your situation. Always consult with your tax and other professionals before acting on anything contained in this document.
This shall not constitute and is not intended to be investing, legal or tax advice. Consult with your estate planner regularly to ensure that your documentation reflects your current situation and wishes. There are many available complex tax and estate tax strategies that may benefit you and are not covered here.