It inevitably seems like the week between Christmas and New Years becomes one big to-do list where we try to remember and then accomplish it all before the calendar flips.
At the risk of giving you more things to tackle, here are a few financial items to review. Some may help lower the tax bill while others are just good to do on an annual basis.
It is by no means a complete list; just some of the more common topics that tend to come up with clients this time of year. If you think any apply to you, you may want add another “to-do” to your list and contact your tax and/or financial advisor.
- Required Minimum Distribution (RMD). If you are not yet 70.5, you can skip this section.
- If you are age 70.5 by 12/31, you need to begin taking distributions from your Traditional and SEP IRA’s.
- If you are already taking RMD’s, you need to take this year’s distribution by the end of this year.
- If this is the year you turned 70.5, you have until April 1, 2017 to take the distribution for 2016. (Note that you will also have to take another distribution by 12/31/2017 to cover the 2017 RMD.)
- Your IRA custodian and/or financial advisor can tell you whether you have met the distribution requirements for the year.
- 401k plans may also require RMD’s. Check with your provider.
- (Source: RMD FAQ’s, IRS.gov)
Make sure this is done. The cost of not taking your RMD’s on time is a tax penalty equal to 50% of the amount not taken!
- IRA Contributions
- If you have a Traditional, Roth or SEP IRA and haven’t made your annual contribution yet, breathe easy. You have until April 18, 2017 to make your deposit for 2016. (Source: IRS.gov)
Make the most of your charitable contributions with one or more of the following strategies.
- Qualified Charitable Distribution (QCD)
- If you are taking RMD’s, you may be able to divert some or all of your distribution to a charity. Distributions made in this way are tax-free.
- Charitable contributions are normally an itemized deduction. The QCD works even if you are taking the standard deduction instead of itemizing.
- (Source: IRS Publication 590)
- Appreciated Stock
- Some charities can accept donations of appreciated securities.
- You get tax credit for the full value of the security and avoid paying potential future capital gains taxes.
- (Source: IRA Publication 550)
- State Sponsored Tax Credits
- Virginia and many other states offer state tax credits for qualifying donations to approved organizations. Check with your favorite non-profit organizations to see if they have any credits to offer.
- Also see here, here and here for lists of Virginia non-profits that are eligible
- Read more of my comments about the tax benefits of NAP, one of these programs
- (Source: Virginia DSS NAP, Virginia DOE NAP, Virginia DOE Scholarship Credits)
- 529 College Savings Plans
- For plans with investment options, you get 2 investment allocation changes per calendar year. Don’t pass up the opportunity to review and make adjustments if needed before year end.
- Tax-Loss Selling
- Review your taxable investment accounts for any unrealized losses you may want to take.
- See here for my more detailed discussion.
- Making Gifts to Loved Ones
- You can give up to $14,000 per recipient this year without lowering your lifetime estate tax exclusion. Bonus: You also don’t have to file additional IRS tax forms.
- If you’re married, you can each give a gift to the same recipient, doubling the amount they can receive.
- If the recipient is in a lower capital gains tax bracket than you, it may make sense to gift them appreciated securities instead of cash.
- I discuss gifting strategies further here.
- (Source: IRS.gov)