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Integrated Wealth Management

5 Year-End Tax Planning Tips for 2017

Here are a some tax-planning techniques and strategies you can still consider in the last few weeks of the year:

1. Watch out for large mutual fund distributions this year

Many mutual funds have realized large gains and typically distribute those gains in November and December.  Don’t buy a mutual fund in your brokerage account right before it makes a 10%, 20%, or 30% (of NAV) distribution – it just turns part of your purchase into a taxable event!  Look for widely published estimates, and if expected to be large, make sure you buy shares after a fund’s ex-dividend date.

2. Max out contributions for savings and retirement

If you are getting a year-end bonus or can manage the cash outflow, be sure to max out your 401(k) and/or Health Savings Accounts.  Remember you can make additional “catch-up” contributions if you are over ages 50 and 55, respectively.

3. Give appreciated assets to family or charity

Giving mutual fund or stock shares with an embedded gain can be a win-win for your 2017 income taxes.  When giving to charity, you get to deduct the full market value of the shares you donate as an itemized deduction.  When giving to a family member, you give the original purchase value of the shares – these can then be sold by the recipient at potentially much lower tax rates than you (even 0%).

4. Make sure you took your Required Minimum Distribution (“RMD”)

If you turned age 70 earlier than July or inherited an IRA, you need to start taking distributions from your retirement accounts soon – although your 401(k) is exempt from this rule if you are still working.  The penalties for overlooking this rule are severe at 50%, so this is not one to miss!  The actual deadlines and calculation of the RMD depends on your circumstances, so be sure to do your homework.

5. Give your RMD to charity

If you are charitably inclined and don’t need the money from your IRA required distribution, realize another win-win by giving your RMD directly to charity.  This transfer, called a Qualified Charitable Distribution (“QCD”), can save you a lot of money because the distribution/income doesn’t show up on your tax return at all!  The QCD can reduce the taxes on your Social Security benefits, lowers the hurdle for getting other tax deductions and credits, and can have wider impacts like reducing your Medicare Part B premiums in the future.  There are special rules and limitations on the QCD, so check these to ensure this strategy makes sense for you.