By Kortney Christensen, CFP®, Executive Vice President, Director of Sales and MarketingPrint This Post
Year-end is a great time to review your tax situation for opportunities to pay less in taxes or pay taxes at a lower rate. Review your portfolio and other financial matters along with your projected income and tax rates with your tax advisor to see whether you should take or defer gains and deductions this year.
For example, you may be able to take a gain on an investment this year, or postpone it until January. If you think your tax rate will be the same or lower next year, it may make sense to postpone the gain until 2018. Similarly, if you are considering making a charitable donation and you expect your income (and tax rate) to be lower next year, consider making the donation in 2017 to offset your higher tax rate. If you pay state estimated taxes, you could make your last quarterly payment in December rather than January to take the deduction in 2017. If you can control when to take a gain or deduction, choosing the appropriate time to take such actions can help you control your potential tax liability year over year.
Changing tax laws can further complicate tax planning. Tax reform is a high priority for the President and certain members of Congress and there is an effort to have the new rules in place by year end. One item under consideration is eliminating certain itemized deductions like the ability to deduct state and local taxes. Also under consideration is increasing the standard deduction, making it more advantageous for some taxpayers to take the standard deduction rather than itemize. These types of developments could change your strategy with regards to the timing of taking deductions. If certain deductions will be limited or eliminated in 2018, it may make sense to take them this year. Similarly, if you anticipate using the standard deduction next year, but will itemize this year, it may make sense to try to maximize items that qualify as itemized deductions in 2017. If we do see tax reform before the end of the year, work with your tax advisor to consider the best strategy for your individual situation.
Please remember, Benjamin F. Edwards & Co. does not provide tax advice, so it is important to consult with your tax professional for guidance tailored to your specific situation.