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5 Year-End Financial Planning Strategies

The end of the year is a busy time for all of us.  It is also a time that we assess how the year has gone and what we could do to improve our lives moving forward.  In this vein, there are a number of financial planning strategies that can be implemented before year end to ensure you don’t miss out on tax and estate planning opportunities.  This is not an extensive list but here are five strategies to be considered before December 31st. Since most of these are tax related I will mention that these strategies are not appropriate for everyone and you should consult a tax attorney before implementing any of them.

  • Tax Loss/Gain planning: During the month of December it is important to take a look at your realized and unrealized capital gains to ensure you are not missing out on tax saving opportunities.  If you have realized any gains during the year you can offset these by selling any positions that are currently at a loss.  If your losses are greater than your gains than you can use the losses to offset ordinary income up to $3,000 or carry it forward to future years’ income. This can be a very powerful strategy if you are sitting on any unrealized losses. One other caveat I’ll mention is you can’t re-purchase the same (or identical) security within 30 days of the sale and still benefit from the loss. This is known as a wash sale.
  • Roth IRA Conversion: There is currently an income limitation to be able to contribute to a Roth IRA ($117,000 for single filers and $186,000 if you are married). However, this does not mean that high earners do not have the ability to grow their money tax free. You can convert a Traditional IRA into a Roth IRA with no income cap. To do this you will be responsible for paying ordinary income taxes on the amount being converted. The converted money will then grow tax free and you won’t owe any taxes at the point of distribution.  With income tax rates at historically low levels this could be an opportunity to lock in these lower rates.
  • Charitable Donations: If you have charitable intent and are trying to reduce your tax exposure for 2016 you must make these charitable donations prior to year-end.  If you are charitably inclined you should have an annual plan in place to make sure you are maximizing the tax savings you can receive each year.  This can be especially powerful if you have sold a business or had a large windfall in 2016.  If you aren’t sure where you want to donate yet you can always set up a donor advised fund to receive the tax benefit today but not lose control of the money and where it goes in the future.
  • Gifting: One of the easiest ways to reduce the size of an estate and potentially reduce exposure to estate taxes is to remove assets from the estate through gifting strategies. Each individual can gift up to $14,000 annually to anyone tax free without affecting your lifetime gifting limit. This means that a married couple can gift up to $28,000 to anyone they want tax free.  In larger families with multiple children and grandchildren this can be a very powerful tool to reduce the size of an estate over time.  The gift must be made by year end or you miss out on this year’s annual exclusion amount.  With proper planning, wealthy families can greatly reduce the size of their estate if gifting is done properly over several years.
  • Estate Plan Review: This last one isn’t really a year-end deadline issue but is something we discuss with clients around year end. It is important to review your estate plan on an ongoing basis to make sure your plan is up to date with any changes in estate tax law or changes in your family dynamic and legacy ambitions. While this should be done on an ongoing basis, the review should be done at least once a year to make sure you don’t miss anything.

This is obviously not an extensive list but hopefully it provides you with a sampling of some opportunities that are available to you. The majority of these opportunities are based on annual limits/ deadlines so once the year is over you miss out on the opportunity for 2016. You should speak with your tax attorney and adviser to discuss what options are appropriate for your situation.

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