YORK — The end of the year may be a busy time of
gathering and celebrating, but financial advisers say it’s
also a crucial period for tax planning when a few
low-stress and timely moves could end up paying off come
there things you can do now before the end of the year?
Absolutely, and they can save you many, many, many
dollars," said Richard Jones, managing director at
Merrill Lynch private banking investment group in Los
Angeles, which advises 90 rich families with a combined
$16 billion in assets.
his help and that of financial advisers from around the
country, here are a few tax-related and other financial
planning ideas that should be on the minds of most
families this time of year:
the future: Before making any move in particular, it’s
important to have a general sense of what kind of income
year to expect in 2015 compared with the current year.
Buffardi, a planner in Oak Brook, Ill., recommended a
tax projection, which takes projected income and
expenses, to figure out what tax you may owe or what
refund you might expect. "The better the input, the
better the answer you are going to get," she said.
even a quick, informal look ahead is useful.
most common foreseeable fluctuations come with a spouse
taking time off to care for a child or return to school,
said Robert Schmansky, a Livonia, Mich., adviser.
are great years to generate income," he said.
Typical steps would be to take gains on appreciated
stocks and mutual funds in taxable accounts.
away income: If you have a 401(k) plan, now is the time
to put as much in as possible, up to a maximum of
$17,500 for employees in conventional plans.
can generally stash up to $5,500 a year, or $6,500 for
those older than 55, in an individual retirement
account, and they can put $3,300 in a Health Savings
Account, or more for families and those over 55. Those
steps don’t have to be done by the end of the year,
but might be done as part of year-end tax planning.
the future looks to be more prosperous than the present,
Owen Murray, a Houston planner, said taxpayers should
consider converting all or part of a conventional IRA,
in which contributions are made before taxes and
distributions are taxed during retirement, to a Roth
IRA, in which contributions come from after-tax funds
but in which distributions are tax-free.
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said a client who recently retired with little income
but a large conventional IRA was able to transfer
$30,000 to a Roth IRA, reaping future tax savings at no
tax cost now. But that works only for those with very
low incomes; otherwise, withdrawals from IRAs would be
expenses: Some deductions have higher hurdles than
others. Unreimbursed medical and dental expenses for
2014, for instance, must exceed 10 percent of adjusted
gross income before deductions are allowed, a tax
provision that makes them applicable mostly to
Montello, a Palm Beach Gardens, Fla., planner, said
taxpayers should be sure to include all medical and
dental expenses such as premiums, co-payments eligible
long-term care premiums, and medical expenses for
now would be the time to schedule elective medical
expenses for the end of the year if you expect to clear
the 10 percent hurdle in 2014. To squeeze in a slightly
bigger mortgage-interest deduction, Christopher K. Winn,
a planner in Beaverton, Ore., recommends making a
January 2015 mortgage payment before the end of the
it: One overlooked trap door in so-called flexible
spending plans offered in many workplaces is
use-it-or-lose-it restrictions. Flexible spending
accounts let you put away money pretax to pay for
certain medical and dependent care expenses tax-free.
you contribute the current maximum of $2,550 to a health
account, you’ll need to spend it this year unless your
employer allows a 2 1/2-month grace period or a
provision that allows $500 to be carried over. Companies
can’t offer both.
pretax stash can’t be used as part of the 10%
threshold in deductions for health expenses.
losses: The end of the year offers a last chance to
offset a big looming tax bill by realizing paper losses
from assets such as stocks, mutual funds and property.
"You can never go wrong harvesting losses in
taxable accounts," said Stanley F. Ehrlich, an
adviser in Westfield, N.J.
the fine print. Internal Revenue Service rules, for
example, say capital losses can offset only up to $3,000
in income, and then only if there are no capital gains.
in a big capital-gain year, it’s often wise to use
losses as an offset. And there are wrinkles that can add
to the benefits.
Lynch’s Jones said that when selling depreciated
securities, his group often simultaneously buys assets
from the same sector, like a sector-specific exchange
traded fund, often at the lower prevailing price.
rules preclude immediately buying the same asset when
declaring a capital loss, but allow the purchase of
similar assets. This way, the loss is realized, while
"keeping the basic integrity of the
wrinkle: If selling is impossible because the value of
the asset has dropped to zero — as in a bankruptcy —
it’s still possible to claim the loss if you can prove
the asset is worthless.
wisely: Although many take advantage of the deduction
for contributions to qualified charities — up to 20
percent of gross income, when limitations set in —
Montello said giving appreciated securities instead of
cash provides more benefits.
allows taxpayers to make a charitable donation, receive
a full tax deduction for the fair market value of the
appreciated securities, and preserve valuable cash flow.
As an added benefit to the charitable organization, any
appreciation of the securities remains untaxed forever.
option, suggests Michele Clark, a Chesterfield, Mo.,
planner, might be to make the contribution into a
so-called Donor Advised Fund, offered by many financial
institutions, that can provide a big deduction for the
current year but allow the donations to be made to
multiple charities and staggered over several years.