BY SUZANNE HAZLETT, MBA, CIMA®, CFP®
Before ringing in the New Year, and while remaining mindful of your long-term investment goals, consider these to-do’s as you prepare to make the most of year-end financial moves:
Manage your income and deductions, paying close attention to your marginal tax bracket.
Evaluate your investments, considering whether you could benefit from tax-loss harvesting.
Factors in life change that you and your family may have experienced during the year.
Mind Your RMDs
Investors who reach a certain age are required to take Required Minimum Distributions (RMDs) from pre-tax retirement accounts. Here are a few reminders for distribution planning:
Your first RMD can be delayed until April 1 of the year after you reach RMD age. If you delay, however, you must also take your second RMD in the same tax year. This can inflate your income, which may affect your tax bracket.
Subsequent RMDs must be taken by December 31 of each calendar year.
Qualified charitable distributions (QCDs) allow traditional IRA owners aged 70 1/2 and older to gift up to $105,000 from their IRA to a qualified charity tax-free.
To Harvest or Not to Harvest
Evaluate the potential benefit of tax-loss harvesting – selling a losing investment to offset taxable gains. If your capital losses exceed your capital gains, excess losses of up to $3,000 can offset ordinary income. Any additional losses can be carried forward to future years. Examine the following subtleties when aiming to decrease your tax bill:
Short-term gains are taxed at a higher marginal rate; aim to reduce those first.
Be aware of “wash sale” rules that affect new purchases before and after the sale of a security. Suppose you sell a security at a loss but purchase another “substantially identical” security within 30 days before or after the sale date. In that case, the IRS will likely consider that a wash sale and disallow the loss deduction.
Manage Your Income and Deductions
Those at or near the next federal marginal tax bracket should pay close attention to anything that might bump them up to the next higher rate.
Determine if it makes sense to accelerate deductions or defer income.
Some retirement plans and health savings accounts can help you reduce taxable income.
Evaluate your income sources – earned income, corporate bonds, municipal bonds, qualified dividends, etc. – to help reduce the overall tax impact.
Evaluate Life Changes
Life changes may have impacted your circumstances over the past year, from welcoming a new family member and incurring high medical expenses to moving to a new state. Bring your advisors up to speed on significant life changes and ask how they could affect your year-end planning.
Suzanne Hazlett, MBA, CIMA®, CFP®, is a Certified Investment Management Analyst® and CERTIFIED FINANCIAL PLANNERTM professional. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Securities are offered through Raymond James Financial Services, Inc., member FINRA/SIPC. HAZLETT WEALTH MANAGEMENT, LLC is independent of Raymond James and is not a registered broker/dealer. 675 Sun Valley Road, Suite J1 + J2, Ketchum, Idaho, 83340 208.726.0605 HazlettWealthManagement.com
