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Financial & Estate Planning

Turkey, Football and Year-End Planning

Financial markets have had their ups and downs this year centered on events that are largely outside of any one person’s control. Examples include the U.S. presidential election, the U.K.’s vote to leave the European Union (“Brexit”), as well as the potential for the Federal Reserve to raise interest rates. As year-end draws nearer, we wanted to take a step back from the news headlines and focus attention on those planning opportunities that are much more within our control… some food for thought if you will ahead of the Thanksgiving holiday.

If you have taxable investment accounts managed by L&W, we will be sending our Tax Planning Estimates Report to clients around December 1st. However, you do not have to wait… Using the link below, you can access portfolio related information in addition to the investment reports we send each quarter. Given the nature of this particular article, I’ll specifically mention three reports that are available through the portal under the “Reports” heading: 1) Income & Expenses, 2) Projected Income, and 3) Realized Gains/Losses. All three of these reports can be used for tax planning purposes ahead of year-end. Click the following link and take a few minutes to explore your Client Portal.

Have you contributed to your employer retirement plans, IRAs, and Roth IRAs?

Contribute the maximum amount to a retirement plan you are eligible and able to make. Be sure to make catch-up contributions if you are age 50 or older. Also, if you have children with earned income, they should consider contributing to an IRA or Roth IRA to get a head start on saving. (A $5,000 contribution to an IRA that earns 8 percent for an 18-year-old will be worth $186,000 at age 65. The same contribution made at age 25 will only be worth $108,000 at age 65. They’ll thank you later!)

Are you getting the most out of your 401(k)?

We often encounter 401(k) and 403(b) accounts that have not been reviewed in quite some time. Investment options in these accounts change; as do markets, fund managers and risks. Click here to continue reading Getting the Most Out of Your 401(k).

Have you spent all of the funds in your flexible spending account (FSA)?

Any funds remaining in your FSA could be lost if not spent on qualified expenses before year-end.

Did you take your required minimum distributions (RMDs)?

Once you reach age 70½, you are generally required to start taking RMDs from traditional IRAs and employer sponsored retirement plans by year-end. RMDs are also required for non-spousal inherited IRAs (including inherited Roth IRAs).

Are there charitable gifts you would like to make before year-end?

Cash gifts are simple, but there are other strategies that may further maximize your tax benefits, including gifts of appreciated securities, Donor Advised Funds (DAFs) or Qualified Charitable Distributions (QCDs) for IRA owners age 70 ½ and older. Click here to continue reading more about Charitable Planning Strategies.

Are there annual exclusion gifts you would like to make before year-end?

You can gift up to $14,000 ($28,000 per married couple) to as many individuals as you want without incurring federal gift tax or utilizing a portion of your gift tax exemption. Keep in mind that gifts to 529 plans or trusts holding life insurance may utilize all or a portion of your exclusion in a given year.

Have you considered important thresholds when planning for income taxes?

There may still be opportunities to plan around income tax thresholds that could result in higher taxes. This might include the relatively new 3.8 percent Medicare surtax, phase outs for itemized deductions, and higher tax rates for long-term capital gains and qualified dividends. Planning for trust distributions is especially important as the various thresholds come into play much sooner than they do for individuals. Often, distributing some income earned by a trust to the beneficiaries can avoid imposition of this surtax.

Have you withheld enough to avoid underpayment penalties for federal income taxes?

Check your federal income tax withholding and estimated quarterly income tax payments to verify you won’t be subject to underpayment penalties for 2016. The IRS safe harbor rules require that individuals pay in at least 90 percent of their current year income tax liability or 100 percent (110 percent above certain income levels) of their prior year liability.

Should you pay property taxes before year-end or wait until early 2017?

For income tax purposes, sometimes it may be beneficial to “double-up” and pay two years’ worth of property taxes in a single year. If your annual Itemized Deductions are only moderately higher than the Standard Deduction, there is a good chance this doubling up strategy could benefit you. Don’t forget to watch out for the alternative minimum tax (AMT).

Are there opportunities for harvesting losses or gains in your portfolio?

Harvesting investment losses can be an effective tax savings strategy, especially when you can offset short-term capital gains that would be otherwise taxed at higher rates.

Are you considering participating in your employer’s deferred compensation plan?

When it comes to making decisions about deferring compensation, your options are numerous, essential to your financial security, complicated, and often irrevocable. Click here to read more about Deferred Compensation.

Have you ever considered the use of a Family Limited Partnership?

The IRS has issued proposed regulations that could eliminate valuation discounts for family limited partnerships (FLPs). This change could occur close to year-end or shortly after the new year. With the maximum gift and estate tax rate currently set at 40 percent, valuation discounts have been a very useful tool for those individuals with a taxable estate. Current exemption amounts are $5,450,000 per person or $10.9 million for a married couple. Visit with your estate planning attorney or Wealth Advisor if you’d like to learn more about planning opportunities and the proposed regulations.

We encourage your feedback and don’t hesitate to contact your Wealth Advisor if you have any questions. Have a great Thanksgiving and Holiday Season!