As 2016 comes to a close, it is a good time to focus on your year-end tax planning. Whether you are having a good year or rebounding from recent losses, you may be able to save some money on your taxes if you make the right moves before the end of the year. Three moves we recommend you should consider as part of your year-end tax planning are: charitable contributions, tax-loss harvesting, and maxing out your retirement account contributions.
Charitable Contributions
As 2016 comes to a close, it is a good time to focus on your year-end tax planning. Whether you are having a good year or rebounding from recent losses, you may be able to save some money on your taxes if you make the right moves before the end of the year. Three moves we recommend as part of our year-end tax planning advice: charitable contributions, tax-loss harvesting, and maxing out your retirement account contributions.
Tax-loss Harvesting
One key year-end investment strategy is referred to as “tax-loss harvesting.” This strategy entails selling off investments, such as stocks and mutual funds, which have realized losses. By doing this, you can use those losses to offset any taxable gains you have realized during the year. These losses offset gains dollar for dollar. If your losses are more than your gains, you can use up to $3,000 of realized losses to cancel out other income as well. If you have more than $3,000 in losses, you can carry this balance, year over year, for as long as you live.
Max Out Retirement Account Contributions
There may be no better investment vehicle than tax-deferred retirement accounts. These accounts can grow a substantial amount because they compound over time free of taxes. Making deductible contributions to your retirement accounts reduces your taxable income for the year. If you are age 50 and older you are permitted catch up contributions, further decreasing your taxable income for the year. Below is a table that illustrates this year’s contributions limits and the changes in these limits for 2017.
The end of the year is always a great time to review your finances and prepare yourself for the year ahead. During this process, paying extra attention to year-end tax planning can have significant benefits going forward. The three ideas listed above can all help decrease your taxes for the next year and many more years going forward. As always, if you have any questions pertaining to your specific situation, please give us a call.