5 Tips for Year-End Tax Planning

The end of the year brings the rush of the holidays, the anticipation of a new year – and some potentially crucial end-of-year tax decisions. Taxes can have a big impact on investments, so making the right moves can mean the difference between significant gains or losses. Here are some tips to consider, although you should consult with a tax professional first.

  • Income timing – Many people can’t control when they take income or pay expenses, but if you can, it might be worth considering. Finding ways to lower your 2017 income could put you into a lower tax bracket and help minimize taxes on dividends, interest and capital gains. Here’s how it works: If 2017 happens to be a high-income year (maybe you received an unexpected commission), consider diverting income, bonuses, discretionary and other income into 2018, if possible.
  • Tax-loss harvesting – Check to see if there are any capital losses on investments you might be able to realize in 2017, rather than carrying them into 2018. You can take up to $3,000 annually in short-term and long-term losses to offset ordinary income. But don’t pull the trigger too quickly on a tax loss. Selling an investment solely for tax reasons might not be a sound long-term strategy.
  • Charitable contributions (including stock) – Charitable contributions must be made by Dec. 31 to qualify for 2017 deductions. You also can donate appreciated stock to a charity. Typically, you’ll be hit with capital gains taxes if you sell a stock that has increased in value, whereas if you give it away, you are able to deduct its full market value. Just remember that it takes time to make a charitable gift of stock, so you should begin the process well before Dec. 31.
  • Retirement – Remember to contribute the maximum to your retirement plans, such as a Traditional IRA or your employer’s 401(k) program, by Dec. 31. If you contribute pre-tax contributions, your taxable income will be reduced by the total amount of your contributions for the year. On the other hand, if you have a Required Minimum Distribution (RMD) from your retirement account (such as a 401(k) or an IRA), you must take it by Dec. 31 or else you face a penalty in addition to income taxes that are due.
  • Late-year purchase of mutual funds – Mutual funds sometimes distribute capital gains at the end of the year based on buying and selling of stock throughout the year. So be careful about buying just before that distribution. Otherwise, you could end up paying taxes on those gains if you hold a fund in a taxable account. Funds will usually provide estimates of their gains several weeks prior to making them. You can typically find those estimates on a mutual fund’s website.

Before the last-minute rush that accompanies the end of the year, start gathering your information while you have some spare time. If you consult a professional for your tax needs, be sure to collect the necessary information that will be needed, such as receipts for medical expenses, charitable donations, education expenses and estimated tax payment information. 

The content provided is for informational and/or educational purposes only. The information presented or discussed is not, and should not be considered, a recommendation or an offer of, or solicitation of an offer by, Scottrade or its affiliates to buy, sell or hold any security or other financial product, or an endorsement or affirmation of any specific investment strategy. You are fully responsible for your investment decisions. Your choice to engage in a particular investment or investment strategy should be based solely on your own research and evaluation of the risks involved, your financial circumstances, and your investment objectives. Scottrade, Inc. and its affiliates are not offering or providing, and will not offer or provide, any advice, opinion or recommendation of the suitability, value or profitability of any particular investment or investment strategy.

Scottrade does not provide tax advice and the information contained herein is not meant as a replacement for professional advice. Please consult your tax or legal advisor for questions concerning your personal tax or financial situation. 

Investors should consider the investment objectives, risks, charges and expenses of a mutual fund before investing.  A prospectus contains this and other information about the fund and may be obtained online or by contacting Scottrade.  The prospectus should be read carefully before investing.

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