End-of-Year Tax Planning
November and December can be hectic. You may be making travel plans, shopping for gifts, or preparing your home for visitors. However, in the midst of this hustle and bustle, it’s important to pause and take stock of your financial situation. The end of the year can be an especially crucial time for tax planning. Here are a few things you can do to ensure you are making the most of your time.
1. Make sure you’re giving back strategically. Last year, Congress permanently codified Qualified Charitable Distributions (QCDs). This means that anyone 70 1/2 years and older can donate their required minimum distribution for this year (up to $100,000) from their IRA to a charity. Doing so does not increase their adjusted gross income and allows for them to give back to the community.
2. Increase your retirement savings contributions. As we head into the end of the year, review your savings goals and see if your contributions are enough to ensure you will reach those goals. In 2016, you can contribute up to $18,000 to an employee-sponsored retirement account, as well as make a $6,000 catch-up contribution if you’re 50 or older.
Consider increasing your contributions to meet the limit or to reach your employer’s matching limit, if they offer such contributions. Contributing more funds to your retirement accounts reduces your taxable income, putting more money in your pockets for 2017.
3. Consider a Roth conversion. This may be the best choice for you if you’re having a low income year, a year with high deductions, or a year with business losses. The amount you convert will be reported as income but will be offset by deductions or operating losses. Please remember, though, that everyone’s situation is unique. If you’re considering this option, reach out to us and schedule an appointment to further discuss whether this may be a good decision for you.
4. Review your stock options. Now is a great time to schedule an appointment to develop projections for your employee-sponsored stock option plan. Reviewing your options earlier might allow you to see greater alternative minimum tax and income tax savings.
