12 Tax Planning Tips for Potential Changes Ahead


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Following the recent election, it’s impossible to predict the full landscape of tax reforms that might occur in 2017 or beyond. However, as the year marches to its end, now’s the time to take stock of both current and potential future tax planning opportunities. 

Here are some tips to consider, from a tax planning perspective.


1. Maximize Retirement Plan Contributions


One of the best ways to reduce taxable income is through pre-tax contributions to a company retirement plan, a self-employed retirement account, or an IRA. Contributions to a company plan could potentially gain you an immediate return if your company offers a matching program.

1Subject to income limitations

2Contributions to Roth accounts do not reduce your current year taxable income, but all future earnings and withdrawals are exempt from future taxation.



Some planning tips for retirement plans:

  • If you receive an employer matching contribution, you might need to spread your contributions throughout the year to qualify for maximum benefits.
  • Self-employed individuals considering a solo 401(k) must establish the account before year-end.
  • Individuals age 50 and older must make formal elections to utilize catch-up contributions.


2. Take Required Minimum Distributions (RMD)


If you’re 70.5 years or older, or have an inherited IRA, avoid penalties by processing your required minimum distribution before December 31.


3. Minimize Capital Gains


Minimizing capital gains and realizing investment losses may help to reduce your tax burden. A professional financial advisor can help you review your investment accounts. If you sell an asset at a loss, you can’t re-purchase the same or any substantially identical investment for 30 days or you risk triggering a wash sale and foregoing the loss. However, you might be able to find a replacement investment that’s a little different, so that you can stay invested, while also capturing a potential tax benefit.

Some planning tips:

  • Currently, moderate- to high-income earners are assessed an extra investment income tax of 3.8% on interest, dividends, and capital gains. This could be modified or eliminated if tax reform occurs. Therefore, you could benefit by deferring capital gains until 2017, when the tax may be altered. Investment risk and opportunity should always be considered in tandem with tax planning.
  • Individuals in lower income brackets currently pay zero tax on long-term capital gains. Tax reform could impose new capital gain taxes, so if you’re in the 15% or lower tax bracket, this could be an ideal year to realize long-term gains, taking advantage of the current zero tax structure.


4. Charitable Contributions


Tax-deductible charitable contributions can help to reduce your taxable income. Contributing appreciated securities further leverages the benefits of your giving objectives, as you receive a tax deduction for making the gift, and avoid a future capital gain tax liability from your investments. The charitable organization gets the same benefit, but they don’t owe taxes when they receive and sell the shares.

A planning tip:

  • Current tax discussions include lowering the upper income tax brackets and increasing the standard deduction. If you’re exposed to the top tax brackets, or if your itemized deductions are relatively low (less than $15,000 for singles and $30,000 for married couples), you could benefit from accelerated charitable giving in 2016.


5. Income Fluctuations & Estimated Tax Payments


If your income has changed in 2016 or if you make estimated tax payments,  year-end planning can help  determine if your taxes are potentially over- or under-paid, and if any estimated tax payments might be due. Accelerated payment of your estimated state tax payment before Dec. 31 could allow additional itemized deduction benefits in tax year 2016. Conversely, it could also trigger alternative minimum tax (AMT) exposure.

A planning tip:

  • If you’re not subject to AMT or itemized deduction phase-outs, you might consider accelerating state estimated tax payments in 2016 to potentially gain greater deductions. This could lower your 2016 taxable income and afford greater tax savings under two scenarios: If you’re in the top tax brackets, you could be in a lower tax bracket in 2017 or thereafter; or state income taxes are one of many itemized deductions considered for elimination under various tax reform plans.


6. Health Spending


Medical expenses are one of many itemized deductions you can potentially claim to reduce taxable income. Only that amount of your total medical expenses that exceeds 10% of your adjusted gross income (7.5% if you or your spouse is 65 or older) can be deducted.

A planning tip:

  • If you foresee medical expenses in 2017, you might benefit from accelerating them in 2016 for two reasons: This is the last year that a lower adjusted gross income threshold of 7.5% applies to medical deductions for individuals age 65 or older. Current tax law increases this threshold to 10% in 2017, making it more challenging to claim medical deductions. And two, medical deductions are one of many itemized deductions considered for elimination under various tax reform plans.


7. Health Funding


Both flexible spending accounts (FSAs) and health savings accounts (HSAs) allow you to pay for medical expenses using pre-tax dollars. Unused dollars in HSA accounts can accumulate as retirement savings, but check your  FSA residual balances before year-end as the majority operate on a use-it-or-lose-it premise. This might also be the time of year to make elections for next year.


8. College Funding


If you plan to contribute towards college savings for younger family members, you might wish to consider establishing and/or funding a college savings plan before year-end. 529 plans offer tax-deferred savings, increased annual gifting limits, and state tax deductions in many states.


9. Business Planning


Business owners may want to consider year-end tax planning opportunities such as timing of expenditures, personal compensation decisions, employee benefit offerings, and more. If you own a business, contact your accountant to discuss specific planning opportunities, and work with a certified financial planner to prioritize and integrate competing tax, business, and personal decisions.

Some planning tips:

  • In the event that tax reform lowers the upper tax brackets in 2017, you might be in a position to take advantage of such a change through two strategies: Accelerating business expenses in 2016 could help to reduce your taxable income and shelter exposure to the higher tax brackets. And two, deferring billings and receipt of income into 2017 could also help to shelter tax exposure in the event that you might be subject to lower tax brackets in 2017. Note that risk factors should always be carefully considered.


10. Roth IRA Conversions


Considering a Roth IRA conversion is particularly important if you project this to be a low or negative income year. Any amount you convert triggers taxable income, but offsetting business losses or a low-income tax year might allow you to convert some amount with little to no tax cost. The amount converted remains tax-free, giving you a lifetime tax-free savings bucket.


11. Family Gifting


There are a variety of ways to provide economic benefits to family members, while also maximizing tax advantages for yourself:

  • Individuals can transfer up to $14,000 per person for 2016, without triggering gift tax or taxable reporting requirements. Always consider your gifting options relative to your own financial security and broader family objectives.
  • Section 529 educational savings plans offer benefits (see above).
  • Larger gifting transfers require more advanced strategies and consideration of future tax changes that could alter your decisions, and should be implemented following professional guidance.

A planning tip:

  • Current tax reform discussions include the possibility of altering or eliminating estate taxes. Such changes could have a significant bearing on your gifting decisions relative to your family wealth transfer objectives and tax planning considerations.


12. Trust Income and Distributions


If you’re the trustee or beneficiary of a trust, be sure to carefully review net trust income and distribution elections. Some elections to distribute income to the beneficiary can defer into early next year, but it’s better to be prepared, especially as trusts reach the top IRS tax bracket of 39.6% at the lower threshold of $12,500 income.

As your wealth grows, end-of-year financial decisions become increasingly significant and complex especially in light of year-end deadlines and the potential for sweeping tax reform in the new year. We encourage you to carefully consider how comprehensive and proactive planning can benefit you and your family. Year-end planning can help keep your financial goals on track.

Note that all references to tax reform changes are based upon current information available. Changes are likely to occur, and risks should be considered relevant to your planning decisions and actions.


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