You just finished your 2016 taxes, but it’s not too early to make plans for 2017. As a CPA, financial adviser and former IRS agent, I see a lot of financial plans that don’t consider tax efficiency.
It’s important that as you build your plan, you think about some strategies to reduce or defer your taxes now or in the future. Here are some strategies to consider:
1. Tax harvesting
Usually, this strategy is implemented near the end of the calendar year, but it can be done at any time. With tax-loss harvesting, you sell off holdings that have a loss position to offset the gains you’ve experienced from other sales. The asset you sold is then replaced with a similar investment to maintain the portfolio's asset allocation and expected risk and return levels. It won’t restore your losses, but it can ease the pain.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
2. Using long-term gains and the 0% tax rate
For those who fall within the 15% tax bracket, your long-term gains are tax-free. Make it a habit to project your taxes and to look for tax opportunities every year as part of your plan.
3. Making IRA contributions
You have until April 17 of 2018 to make a Roth or traditional IRA contribution for the 2017 tax year, but why put it off? In fact, ou could even use your income tax refund to fund it. Remember, a Roth creates tax-free income in the future, which is worth its weight in gold.
4. Using the “backdoor” Roth
Some people make too much money to contribute to a Roth IRA or to take a deduction on a traditional IRA. But you still can make a contribution to a traditional IRA without the deduction and later convert it to a Roth. There’s no tax due, except on growth in the account that you earn between the time of the contribution and the conversion. If you hold money in a traditional IRA for a short time only, the growth — and the resulting tax — should be small.
5. Exploring financial vehicles that can defer taxes on dividends, interest and capital gains
Tax deferral allows you to employ the triple compounding effect: It pays interest on the principle, interest on the interest and interest on the taxes that you would have paid if you were in an investment that was taxed annually.
In 2017 — or any year for that matter — don’t wait until the end of the year to think about the moves that could save you on your tax return. Get together with your financial adviser or tax professional now to discuss a plan that will help you succeed in your goals.
Kim Franke-Folstad contributed to this article.
-
The Most Tax-Friendly States for Investing in 2025 (Hint: There Are Two)State Taxes Living in one of these places could lower your 2025 investment taxes — especially if you invest in real estate.
-
Want To Retire at 55? See If You Can Answer These Five QuestionsWho said you can’t retire at 55? If you say yes to these questions, you may be on your way to an early retirement.
-
Potential Trouble for Retirees: A Wealth Adviser's Guide to the OBBB's Impact on RetirementWhile some provisions might help, others could push you into a higher tax bracket and raise your costs. Be strategic about Roth conversions, charitable donations, estate tax plans and health care expenditures.
-
One Small Step for Your Money, One Giant Leap for RetirementSaving enough for retirement can sound as daunting as walking on the moon. But what would your future look like if you took one small step toward it this year?
-
This Is What You Really Need to Know About Medicare, From a Financial ExpertHealth care costs are a significant retirement expense, and Medicare offers essential but complex coverage that requires careful planning. Here's how to navigate Medicare's various parts, enrollment periods and income-based costs.
-
I'm a Financial Planner: Could Partial Retirement Be the Right Move for You?Many Americans close to retirement are questioning whether they should take the full leap into retirement or continue to work part-time.
-
From Mortgages to Taxes to Estates: How to Prepare for Falling Interest RatesAs speculation grows that the Federal Reserve will soon start lowering interest rates, now is a good time to review your financial plans for housing, estate, taxes, investing and retirement to make the most of potential changes.
-
This Is How Lottery Winners Build Lasting Legacies, From a Financial ProfessionalWinning a massive lottery jackpot, like the recent $1.4 billion Powerball, requires seeking immediate legal and financial counsel, protecting your identity and winnings and planning your legacy.
-
I'm an Investment Strategist: This Is How the Fed's Next Rate Move Could Impact Your WalletInterest rate cuts might be coming, which could affect everything from your credit card debt to your mortgage. It's smart to prepare now — here's how.
-
I'm a Retirement Planner: These Are Three Common Tax Mistakes You Could Be Making With Your InvestmentsDon't pay more tax on your investments than you need to. You can keep more money in your pocket (or for retirement) by avoiding these three common mistakes.
