Tips for 2017 Year-End Tax Planning

The U.S. House of Representatives recently released the Tax Cuts and Jobs Act, giving a glimpse into potential tax reform. With all the proposed changes, it’s still important to keep year-end tax in mind before any legislation is passed. Below are a few year-end tax planning techniques to consider as we wrap up 2017.

  • Defer Income – In certain situations, it may make sense to defer income into 2018. Consider deferring a year-end bonus or a capital gain.
  • Prepay Deductions – Just like deferring income, in certain situations it may make sense for you to prepay deductions including charity, state and local taxes, real estate taxes and potentially your mortgage interest.
  • Harvest Capital Losses – Make sure to look at your investments and overall portfolio before year-end. If you have net capital gains for the year, it may make sense to harvest some capital losses. Keep in mind you are limited to losses, in excess of gains, of $3,000 per year. Any excess loss can be carried forward to 2018.
  • Roth IRA Conversion – Is your income down in 2017? If so, it might make sense to convert part of your traditional IRA into a Roth IRA. By doing this, you are electing to tax this conversion while you are temporarily in a lower income tax bracket. Another advantage is your investment can now grow tax-free.
  • Maximize Retirement Plan Contributions – Currently, the maximum IRA contribution remains at $5,500. Individuals over age of 50 are allowed to contribute an additional catch-up contribution of $1,000 to an IRA. Employer-sponsored 401(k) maximum remains at $18,000 with a catch-up contribution of $6,000 for individuals over age 50.
  • Pre-Tax Savings Plan – Similar to maximizing retirement plan contributions, you can also take advantage of maximizing your contributions to pre-tax savings plans as well. These could include your HSA, FSA or dependent care plan. Make sure you are contributing the maximum amount to these plans in order to take full advantage of the tax savings they offer. Keep in mind that for plans like an FSA and dependent care, you must have qualified expenses in order to take advantage of the tax savings.
  • Gifts – The 2017 annual gift exclusion remains at $14,000 per person. This means that a married couple can jointly gift $28,000 to a single individual. Please remember that gifts over the annual exclusion amount must be reported on a gift tax return.

If you think any of the above year-end tax planning techniques are a great fit for you, contact an Anders advisor for help implementing these techniques now.