Here are a few 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 that you have a good understanding of your current tax situation, as
well as a reasonable estimate of how your circumstances might change next year. There’s a real
opportunity for tax savings if you’ll 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 31, so don’t 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 then. 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
payment of tax on the income until next year. An additional consideration is the possibility of
lower tax rates beginning in 2018 if new tax legislation is passed.
3. Accelerate deductions
You might also 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, instead of paying them in early
2018, could make a difference on your 2017 return.
4. Factor in the AMT
If you’re 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’re subject to the AMT in 2017, prepaying 2018 state
and local taxes probably won’t 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. Maximize retirement savings
Deductible contributions to a traditional IRA and pre-tax contributions to an employer-sponsored
retirement plan such as a 401(k) can reduce your 2017 taxable income. If you haven’t already
contributed up to the maximum amount allowed, consider doing so by year-end.
6. Take any required distributions
Once you reach age 70½, you generally must start taking required minimum distributions
(RMDs) from traditional IRAs and employer-sponsored retirement plans (an exception may
apply if you’re still working for the employer sponsoring the 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.
7. Weigh year-end investment moves
You shouldn’t let tax considerations drive your investment decisions. However, it’s 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 those 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.
8. Beware the net investment income tax
Don’t forget to account for the 3.8% net investment income tax. This additional tax may apply 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).
9. Get help if you need it
There’s a lot to think about when it comes to tax planning. That’s why it often makes sense to talk to a tax professional who is able to evaluate your situation and help you determine if any year-
end moves make sense for you.
If you have questions about tax planning, retirement planning, planning your estate, or how to
qualify for Medicaid long-term care benefits in Louisiana, contact Houma estate and elder law
attorney John Sirois at 985-580- 2520 or email him. You can find more
information in his John’s book, Louisiana Retirement and Estate Planning.
