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Tis’ year-end planning season, and here are a few investment and tax planning tips.

Many investors can manage their taxable income with a few tips and twists to consider:

  1. First of all, prepare, in writing, your lifestyle goals and associated spending requirements in retirement. Consider several timelines with your lifestyle. For example, prepare lifestyle goals of 5 years, 10 years, 15 years and 20 years in the future. Specific goals and financial commitments may include:
  2. Stock and mutual fund companies with year-end dividend distribution dates may cause tax surprises to taxpayers. The first step is to determine the Ex-Dividend date for the stocks or mutual funds. If the investment shows a small gain for investment held less than 12 months, or an unrealized loss, you may consider selling and repurchasing before the year end. If there is an unrealized loss, you will need to consider the wash-sale loss rules as well. In a situation where there is no wash-sale rule violation risk, selling and re-purchasing the investment to minimize surprise income or capital gain at year-end is one way to manage year-end income in taxable investment accounts.
  3. If you are concerned about minimizing your annual tax due on your Required Minimum Distributions (RMD) from your IRA, it is best to distribute the RMD in the early part of each year with expectations that the IRA will increase its value during the year. Since the RMD is computed from the beginning of year balance, in rising equity and bond environments, you will save on tax owed from the distribution.
  4. a. Develop a tax rate bracket strategy to minimize a surprise increase in your marginal tax bracket. For example, married taxpayers who are near the Net Investment Income Tax threshold, NIIT, are at risk of paying the 3.8% tax on investment income in excess of $250,000. Consider deferring income to the next year.
    b. Also consider planning to minimize tax bracket creep to a higher tax bracket. Here’s an example. Say you are near the 33% bracket; consider deferring additional income and increasing deductions at year-end to stay below the 33% bracket of $233,475 for 2017.

Year end and first of year tax planning can minimize your income tax obligations. Planning is essential in the final few months of the year.

Is your year-end tax plan in place?