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Checklist for Year-End Tax Planning

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Status of Republican Tax Bill:

The republicans still have not passed a “Tax Reform” bill.  If the past is any indication, it may not happen until after the new year.  However, that does not excuse you from proper year-end tax planning as some things cannot be done after the end of the calendar year (like charitable giving, property tax payments, tax-loss harvesting, business expensing and other itemized deductions).  Due to that, we are sharing our annual year-end tax planning list for all of you to consider with your tax and financial planning team.  We will send an update if and when the Republicans pass a tax bill.

What are appropriate checklists for year-end tax planning?

In my experience, tax planners often develop checklists to guide taxpayers toward year-end strategies that might help reduce taxes. Throughout the year, I publish many timely tax related articles (summarized here).  Now that everyone has filed, I wanted to put together a checklist of things that you should review for yourself for with your tax and financial planning team.  I have grouped the list into several different categories, such as “Filing Status” or “Employee Matters,” for ease of reading. As year-end approaches, it might be wise to review each suggestion under the categories that apply to you.

Filing status and exemptions:

  • If you’re married (or will be married by the end of the year), you should compare the tax liability for yourself and your spouse based on all filing statuses that you might select. Compare the results when you file jointly and when you file married separately. Determine which results in lower overall taxation.
  • Determine whether you’re entitled to claim a dependency exemption for a parent or other relative. You will need to have contributed more than half of that individual’s support during the year, and other conditions may also apply.
  • If you’re claiming a dependency exemption for a child who is 19 or older (age 24 or older if a full-time student), make sure that the child’s gross income doesn’t exceed $4,050 for 2017.
  • If you and several other people financially support someone but none of you individually qualifies to claim the individual as a dependent, you should consider making an agreement with all of the other parties to ensure that at least one (but ONLY one) of you can claim the individual as a dependent.

Family tax planning:

  • Sometimes it is possible to reduce your overall taxes by shifting income to other family members in lower brackets.  Review your planning and family and determine whether you can and should shift income to family members who are in lower tax brackets in order to minimize overall taxes. The kiddie tax rules apply to those:
    1. Under age 18,
    2. Age 18 whose earned income doesn’t exceed one-half of their support, and
    3. Age 19 to 23 who are full-time students and whose earned income doesn’t exceed one-half of their support.
  • Consider making gifts of up to $14,000 (for 2017) per person federal gift tax free under the annual gift tax exclusion. Use assets that are likely to appreciate significantly for optimum income tax savings.  This is increasing to $15,000 in 2018.
  • Don’t forget to use any remaining balances in flexible spending accounts that could be lost if not used.
  • Take advantage of tax credits for higher education costs if you’re eligible to do so. These may include the American Opportunity (Hope) credit and the Lifetime Learning credit. Note that these credits are based on the tax year rather than the academic year. Therefore, you should try to bunch expenses to maximize the education credits.
  • If you have qualified student loans (and meet all necessary requirements), you may be entitled to take a deduction for the interest you paid during the year. The maximum amount you can deduct is $2,500.
  • Make sure that you take any needed distributions from your Section 529 Plans that can be backed-up by actual payments during calendar year 2017.

Employee matters:

  • Self-employed individuals (who generally use the cash method of accounting) can defer income by delaying the billing of clients until next year. You may also be able to defer a bonus until the following year.
  • Use installment sale agreements to spread out any potential capital gains among future taxable periods.
  • Employees can deduct their business expenses as long as these expenses exceed 2 percent of annual adjusted gross income (AGI). Therefore, attempt to bunch as many of these business expenses as possible during the current year in order to maximize the deductions.


Business Owner – income and expenses:

  • Accelerate expenses (such as repair work and the purchase of supplies and equipment) in the current year to lower your tax bill.
  • Increase your employer’s withholding of state and federal taxes to help you avoid exposure to estimated tax underpayment penalties.
  • Pay last-quarter taxes before December 31 rather than waiting until January 15.
  • Make sure that you meet the required threshold percentages of your AGI to deduct expenses by “bunching” miscellaneous expenses into the same year.
  • If you have significant business losses this year, it may be possible for you to apply them to the prior year’s returns to receive a net operating loss carryback refund. If you had significant income in prior years, you should maximize the current year’s losses by deferring income if possible.
  • In certain circumstances, it may be possible for the full cost of last-minute purchases of equipment to be deducted currently by taking advantage of Section 179 deductions.
  • Generally, you are able to make a contribution to your retirement plan at any time up to the due date (plus extensions) for filing a given year’s tax return.
  • If you own an interest in a partnership or S corporation, consider whether you need to increase your basis in the entity so you can deduct a loss from it for this year.
  • For small businesses (or independent contractors), you can consider setting up aretirement plan (401k, SEP IRA, SIMPLE IRA or a Defined Benefit Plan). These may allow you to defer taxes on income of anywhere from around $12,500 to $54,000 (or possible much more if you use a Defined Benefit plan).


Financial investments:

  • Pay attention to the changes in the capital gains tax rates for individuals and try to sell only assets held for more than 12 months.
  • Consider selling stock if you have capital losses this year that you need to offset with capital gain income (sometimes called “tax-loss harvesting”).
  • Review your Adjust Gross Income (AGI) and then review your passive investment income to see if you are going to get “hit” with the 8% Obamacare Tax – if so, perhaps you can reduce your AGI below that threshold.
  • If you plan to sell some of your investments this year, consider selling the investments that produce the smallest gain.
  • If you are in a lower tax bracket this year, consider converting a portion of your IRA to a Roth IRA.
  • If you made any IRA Rollovers in 2017, make sure you didn’t make any common IRA rollover mistakes.
  • Make sure you take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retirement plan). RMDs from IRAs must begin by April 1 of the year following the year you reach age 70- 1/2.

Personal residence and other real estate:

  • Make your early January mortgage payment (i.e., payment due no later than January 15 of next year) in December so that you can deduct the accrued interest for the current year that is paid in the current year.
  • If you want to sell your principal residence, make sure you qualify to exclude all or part of the capital gain from the sale from federal income tax. If you meet the requirements, you can exclude up to $250,000 ($500,000 for married couples filing jointly). Generally, you can exclude the gain only if you used the home as your principal residence for at least two out of the five years preceding the sale. In addition, you can generally use this exemption only once every two years. However, even if you don’t meet these tests, you may still be able to qualify for a reduced exclusion if you meet the relevant conditions.
  • Consider structuring the sale of investment property as an installment sale in order to defer gains to later years.
  • Maximize the tax benefits you derive from your second home by modifying your personal use of the property in accordance with applicable tax guidelines.

Retirement contributions:

  • Make the maximum deductible contribution to your IRA (or consider a Roth IRA if you are eligible).
  • Try to avoid premature IRA payouts to avoid the 10 percent early withdrawal penalty (unless you meet an exception).
  • Contribute the full amount to a spousal IRA, if possible. If you meet all of the requirements, you may be able to deduct annual contributions of $5,500 to your traditional IRA and $5,500 to your spouse’s IRA. You may be able to contribute and deduct more if you’re at least age 50.
  • Set up a retirement plan for yourself, if you are a self-employed taxpayer.
  • Set up an IRA for each of your children who have earned income (consider a Roth IRA for your children as it may be more beneficial than a traditional IRA).
  • If possible, minimize the income tax on Social Security benefits by lowering your income below the applicable threshold.

Charitable donations:

  • Make a charitable donation (cash or even old clothes) before the end of the year. Remember to keep all of your receipts from the recipient charity.
  • Use appreciated stock rather than cash when contributing to charities. This may help you avoid income tax on the built-in gain in the stock, while at the same time maximizing your charitable deduction.
  • Use a credit card to make contributions in order to ensure that they can be deducted in the current year.
  • Consider making a tax-free IRA distribution for charitable purposes if you are age 70 ½ or older.

Itemized miscellaneous:

  • Take advantage of the adoption tax credit for any qualified adoption expenses you paid. In 2017, you may be able to claim up to $13,570 (up from $13,460 in 2016) per eligible child (including children with special needs) as a tax credit. The credit begins to phase out once your modified AGI exceeds $203,450 and it’s completely eliminated when your modified AGI reaches $243,540.
  • Maximize the use of itemized miscellaneous expenses and/or medical expenses by bunching such expenses in the same year, to the extent possible, in order to meet the threshold percentage of your AGI.
  • Make sure that you have applied for Social Security numbers for all new dependents. Otherwise, the dependency exemption on your income tax return may be disallowed.
  • Review your option to deduct state and local sales and use taxes instead of state and local income taxes (very important in Texas where we have no state income tax to deduct).
  • You may be able to save taxes this year and next by applying a bunching strategy to “miscellaneous” itemized deductions, medical expenses and other itemized deductions.



 Disclaimer: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by STA Wealth Management, LLC (“STA”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from STA.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  STA is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the STA’s current written disclosure Brochure discussing our advisory services and fees is available upon request. If you are a STA client, please remember to contact STA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.


IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.


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