10 Year-End Tax Tips for 2017

Here are some things to consider as you weigh potential tax moves between now and the end of the year:

1. Set aside time to plan

Effective planning requires you to have a good understanding of your current tax situation, as well as a reasonable estimate of how your circumstances could change next year. There is a real opportunity for tax savings if you will be paying taxes at a lower rate in one year than in the other. However, the window for most tax‐saving moves closes on December 31st, so best not to procrastinate.

2. Defer income to next year

Consider opportunities to defer income to 2018, particularly if you think you may be in a lower tax bracket in the coming year. For example, you may be able to defer a year‐end bonus or delay the collection of business debts, rents, and payments for services. Doing so may enable you to postpone paying tax on the associated income until next year.

3. Accelerate deductions

Look for opportunities to accelerate deductions into the current tax year. If you itemize deductions, making payments for deductible expenses such as medical expenses, qualifying interest, and state taxes before the end of the year, rather than paying them in early 2018, could make a difference on your 2017 return.

4. Factor in the AMT

If you are subject to the alternative minimum tax (AMT), traditional year‐end maneuvers such as deferring income and accelerating deductions can have a negative effect. Essentially a separate federal income tax system with its own rates and rules, the AMT effectively disallows a number of itemized deductions. For example, if you are subject to the AMT in 2017, prepaying 2018 state and local taxes probably will not help your 2017 tax situation, but could hurt your 2018 bottom line. Taking the time to determine whether you may be subject to the AMT before you make any year‐end moves could help save you from making a costly mistake.

5. Bump up withholding to cover a tax shortfall

If you are going to owe federal income tax for the year, especially if you may be subject to an estimated tax penalty, consider asking your employer (via Form W‐4) to increase your withholding for the remainder of the year to cover the shortfall. The biggest advantage in doing so is that withholding is considered to have been paid evenly through the year, rather than when the dollars are actually taken from your paycheck. This strategy can also be used to make up for low or missing quarterly estimated tax payments.

6. Maximize retirement savings

Deductible contributions to a traditional IRA and pretax contributions to an employer‐sponsored retirement plan such as a 401(k) can reduce your 2017 taxable income. If you have not already contributed up to the maximum amount allowed, consider doing so by year end.

7. Take any required distributions

Once you reach age 701⁄2, you generally must start taking required minimum distributions (RMDs) from your traditional IRA(s) and/or employer‐sponsored retirement plan(s) (an exception may apply if you are still working and participating in an employer‐sponsored plan). Take any distributions by the date required – the end of the year for most individuals. The penalty for failing to do so is substantial: 50% of any amount that you failed to distribute as required.

8. Weigh year‐end investment moves

Remember not to let tax considerations drive your investment decisions. However, it is worth considering the tax implications of any year‐end investment moves that you make. For example, if you have realized net capital gains from selling securities at a profit, you might avoid being taxed on some or all of these gains by selling losing positions. Any losses over and above the amount of your gains can be used to offset up to $3,000 of ordinary income ($1,500 if your filing status is married filing separately) or carried forward to reduce your taxes in future years.

9. Beware the net investment income tax

Don’t forget to account for the 3.8% net investment income tax (NIIT). This additional tax applies to some or all of your net investment income if your modified AGI exceeds $200,000 ($250,000 if married filing jointly, $125,000 if married filing separately, $200,000 if head of household).

10. Get help from a professional

There is so much to think about when it comes to tax planning including changes in the tax law. It often makes sense to review your specific circumstances with an experienced comprehensive tax planner who can help you evaluate your options and determine if any year‐end moves make sense for you. Please call us if you have any questions.