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Maximize your tax planning

By Staff | Nov 4, 2015

It’s already that time of year to visit with your tax professional to discuss how best to minimize taxes in 2015 and perhaps, beyond.

Currently, the 2016 Federal tax rates are expected to remain the same as 2015; thus the top rate should remain 39.6%.

The top rate applies to income of more than $413,200 (single); $464,850 (married filing jointly and surviving spouses), $232,425 (married filing separately) and $439,000 (heads of household). For certain high-income taxpayers, a 3.8% net investment income tax may also apply.

Postponing income, accelerating deductions

Typically, if you expect to be in a lower tax bracket in the future, it generally makes sense to defer income into later years and where possible, accelerate deductions into the current year. Some steps that may be taken:

Maximize contributions to 401(k) or other retirement savings accounts.

Delay recognizing capital gains until 2016.

Prepay state estimated tax payments, property taxes, and mortgage payments before year end.

Move future charitable donations into 2015.

Take capital losses before year end (short-term losses are preferred).

Accelerating income, postponing deductions

However, if you expect a substantial increase in income or anticipate using a less favorable filing status in 2016, accelerating income into 2015 and/or delaying deductions until 2016 may be the appropriate strategy. Some steps that may be taken:

Move up planned retirement plan distributions to 2015 rather than take them next year (assuming the 10% penalty tax on early distributions to individuals under 59 1/2 does not apply).

Recognize capital gains this year.

Settle any legal disputes that might result in taxable income before year end.

Delay the payment of state estimated tax payments to 2016 (after considering the possibility of late-payment penalties).

Postpone the sale of loss-generating assets.

Charitable giving

While the markets have been volatile the last few months, most long-term investors have substantial unrealized capital gains in their portfolios.

Those appreciated stock positions are excellent vehicles to make charitable contributions. Assuming a taxpayer itemizes deductions, not only is donated stock deductible, but the appreciation on the stock is deductible, as well.

Alternatively, if the stock is sold, the appreciation may be subject to capital gains tax and possibly net investment income tax.

Meet with your tax advisor

This discussion is meant only to provide an overview of a few strategies that may be available to optimize your tax situation. We strongly recommend you meet with your tax professional before year end to review your situation.