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By Michael Woloshin, Investment Adviser Representative, Founder and managing director
| December 12, 2017
In the novel David Copperfield, Charles Dickens called procrastination the “thief of time.”
Procrastination also can cost you plenty of cold hard cash when it comes to your income taxes.
There are several strategies that can help you reduce your taxes this year and in the future — but you must move quickly. You’ll have to beat certain deadlines, or the opportunities will disappear.
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Consider putting more money into your individual retirement accounts, Roth IRAs, 401(k)s, 403(b)s, etc. Saving any amount toward your retirement is smart — but if you can, consider contributing the maximum allowed.
Although 2017 was a great year for most investors, many still have stocks, exchange traded funds (ETFs) or mutual funds that experienced a capital loss. If these losses are greater than your capital gains, you may be able to deduct them from your ordinary income — up to $3,000. If you can’t write off all your stock losses this year, you can carry over the loss to future tax years. (There are rules for making these calculations, so be sure to consult your tax professional.)
If you’re concerned because you’re on the cusp of entering the next tax bracket this year, or if you expect your income to be less next year, consider deferring a paycheck or other income to minimize your current liability.
You also may want to look at paying some deductible expenses this year rather than next to temporarily lower your income. If you use a credit card to pay one or more of next year’s bills today, you can deduct the expenses in 2017, then pay off that amount next year. (This would work for medical or dental expenses, for example, or if you’re planning to add solar panels to your home.) If you’re retired or self-employed, prepaying the balance of your estimated state tax liability this year rather than waiting for January would secure the deduction for this current tax year.
Most publicly traded securities with unrealized long‐term gains can be donated to a public charity (501(c)(3). You can then claim the fair market value as an itemized deduction on your federal tax return — up to 30% of your adjusted gross income. You won’t owe capital gains taxes because the securities were donated, not sold. If you wish to make a larger contribution ($5,000 or more), look at establishing a donor-advised fund. Most mutual fund companies offer this charitable-giving program.
Here’s one strategy where a little delay could pay off. Most mutual funds distribute capital gains at the end of the year, and if the fund is in a non-qualified account (meaning a tax-deferred account such as a 401(k) or 403(b) plan), that money is taxable to you regardless of when you made the purchase. If you buy the mutual fund after the capital gains distribution, you’ll not only avoid the federal income tax, but the price will usually drop, so you could get it for less.
This tip won’t help you reduce taxes, but it may help shield your money from federal estate and gift taxes. For 2017, federal estate taxes kick in for individuals with estates exceeding $5.49 million. You can give up to $14,000 in non-taxable gifts this year to as many people as you like and can afford. And the gifts don’t count toward your lifetime exemption from this gift tax.
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These are just a few of the year-end strategies you can use to manage your tax liability. Don’t miss out by waiting until the new year to think about your tax return. Talk to your financial adviser and tax professional as soon as possible about how you can reduce your taxes in 2017.
Kim Franke-Folstad contributed to this article.
Michael Woloshin is an Investment Adviser Representative, insurance professional and the founder and managing director of Woloshin Investment Management. His priority is helping those who are about to retire or who already have retired pursue their financial independence utilizing customized income strategies. Woloshin has over 35 years of experience advising clients.
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