Investor Update—Tax Planning
I don’t think it matters what your tax scale is, I believe that the government don’t spend our money that wisely that we should give them any more than necessary. With this thought in mind I feel like tax planning is an essential part of what we do with our clients daily.
Yes, we may implement a lot of the strategies towards the end of the year when we can get a clearer handle on what our tax position will look like, however any time of year is good time to get an understanding what if any strategies may be able to be used.
Here is our 2016 Tax Guide and a few commonly overlooked tax strategies
Source: Raymond James
- Utilizing the tax scales
A common mistake I see are people not taking full advantage of the tax scales. First by understanding what your AGI will look like will allow you some potentially beneficial tax treatment. For 2016 the long-term capital gains rate for anyone in the 10-15% tax bracket is zero. Im in this boat this year due to starting a business and despite having a smaller income than in the past, Im able to deduct a lot more than when I was a W2 employee. For a married couple if your AGI is below $75,800 then you would pay zero in capital gains tax until you reached that level, meaning if your AGI was $50,000 then you would have the potential to claim around $25,000 in long term gains before having to pay capital gains tax.
Other strategies would be looking at Roth conversions. Although the decision of whether to do it or not can be complex, it usually can start with knowing where your AGI will be at year end.
- Contributing to Retirement Plans/Health Savings Accounts
Participating in 401K plans, contributing to IRA’s or if you’re a business owner and can create a Simplified Employee Plan (SEP) then this is an opportunity to defer taxes this year and reduce your AGI.
Health Savings Accounts (HSA’s) are available to those who covered under a high deductible plans. For a family, you could contribute $6,750 in 2016 into the account, again which is deductible from your AGI. In most cases the balances in the HSA can be invested in funds, like your IRA. In essence this gives you a second IRA.
- Tax loss Harvesting
Another simple one is ensure you review your gains at the end of the year and see if you can offset some of these gains selling assets that have a capital loss. Be sure not to buy those assets back within 30days, as you will be subject to the Wash Sale rule and it will be like you never sold it in the first place.
- Charitable Contributions
Most people think about the cash contributions you give to your designated charity. You are also able to claim non-cash charitable contributions. If you had a clean out and donated to goodwill don’t forget to get a receipt. You can claim the fair market value but will need to supply a receipt if the value was above $250. If your contribution is above $500 you will need to complete for 8283 and attach to your return.
My point here is don’t wait till it’s too late. Understand what options you have by discussing with your financial advisor and confirming this with your CPA or tax professional.
Any opinions are those of Mick Graham and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of Raymond James, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
