TAX PLANNING

12 Last-Minute Tax Tips: Postpone Income, Accelerate Deductions

12.02.2016 - Craig Richards


It's December, the time of year we usually remind investors and their accountants to make sure they are considering multiple tax strategies, including postponing or reducing their income and maximizing their allowable deductions.

Our annual reminder could be especially important this year. Although the tax reforms proposed by President-elect Trump and the House GOP are still preliminary, we have seen a number of clients preparing for these possible changes by turbo-charging their normal year-end tax strategies.

Time is short. But there may be steps you can take to postpone income into the 2017 tax year (when taxes are expected to be lower) and pull as many tax deductions as possible into 2016 (before the allowable deductions are possibly reduced).

1. Delay bonuses and commissions.
If possible, delay taking your bonus or collecting commissions until next year.

2. Hold onto your US Savings Bonds.
Postpone redeeming any savings bonds until 2017.

3. Wait until next year to exercise your stock options.
If your options don't expire in 2016, it may be worth waiting until next year to exercise them.

4. Don't convert your IRA.
If you have been thinking about converting your regular IRA into a Roth IRA, you might want to hold off until 2017. If you already made a conversion in 2016, you can undo that conversion up until October 15, 2017.

5. Take advantage of tax-deferred retirement plans.
To reduce your taxable income this year, maximize your IRA and 401(k) contributions.

6. Donate IRA distributions directly to charity.
Instead of receiving IRA distributions directly, consider donating them to charity. If you are over age 70½ and taking required minimum distributions from an IRA, you are allowed to transfer up to $100,000 directly to qualified charities. If the transfer is made properly, that $100,000 will not be considered income or a deduction for federal tax purposes in 2016.

7. Wait until 2017 to sell appreciated property at a gain.
If capital gain rates are reduced, pushing the sale of appreciated property or stocks into 2017 might help reduce your tax obligation. If rates aren't reduced, pushing the sale into 2017 can postpone the liability. If possible, consider an installment sale or like-kind exchange. One caveat: In Trump's proposal, individuals in certain tax brackets could be better off selling in 2016. Always consult your CPA before taking any measures that could affect your tax liability.

8. Harvest investment losses.
To offset capital gains, harvest any unrealized capital losses before the end of the year and remember to check for unused capital losses in previous years that might be carried over into 2016. Be sure not to repurchase the same security within thirty days before or after the trade date in order to avoid the wash sale rules.

9. Pre-pay state income taxes.
If you expect to pay fourth quarter 2016 state income taxes in January, or a state tax balance due in April, consider pre-paying those amounts this year. Be mindful of the alternative minimum tax.

10. Ramp up your charitable contributions.
It could be helpful to make additional charitable contributions in 2016. If you have a pledge that isn't due until next year, you may want to make it before year end. You should also consider using a donor advised fund to take the deduction in 2016, even if you aren't sure who the ultimate recipient might be. If possible, use appreciated property to fund these gifts.

11. Distribute trust income, even if it's not required.
Complex trusts may be able to reduce their tax burdens by distributing income to beneficiaries, potentially shifting the burden to an individual who is in a lower tax bracket than the trust. Distributions made to beneficiaries within the first 65 days of 2017 can be treated as if they were made in 2016.

12. Make your annual exclusion gifts.
While Trump has been a vocal critic of the federal estate tax, its future remains uncertain. We believe that if you haven't made your annual exclusion gifts this year ($14,000), you should. Making payments of tuition and medical expenses directly to institutions is also something that should be continued.

For more specific guidance on these strategies, please reach out to your Fiduciary Trust representative. We will be monitoring tax reform as it unfolds.

Please note that many of the tactics described above could be beneficial whether or not President-elect Trump's tax reforms are implemented in 2017. But always consult with your accountant to be sure any tax-related action is appropriate for your unique situation.




This communication is intended solely to provide general information. The information and opinions stated are as of December 2, 2016, and may change without notice. The information and opinions do not represent a complete analysis of every material fact. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process. Historical performance does not guarantee future results and results may differ over future time periods.

IRS Circular 230 Notice: Pursuant to relevant U.S. Treasury regulations, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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