I was recently in one of the big-box home improvement stores, watching the hustle and bustle of the store’s staff in the Christmas décor aisles.  If Christmas is near, then New Year’s Day can’t be far behind.  It’s probably time, then, to start thinking about year-end tax planning. Here are some year-end ideas you can ponder as you start to sing Christmas carols:

  1. Do you have the need and ability to contribute additional funds into a qualified plan? Most plans will allow you to contribute past December 31st and still receive the tax benefit this year.  However, if you have a 401(k) and still have room and the ability to contribute this year, it may make sense to max out your contributions by increasing the amount taken out of your paycheck for the remainder of the year.  This will not only increase the amount of your qualified investments, but will decrease the amount of taxable income reported on your W-2.  The limit on employee elective deferrals for a 401(k) for this year is $18,000 if under age 50 or $24,000 if over 50.
  2. Do you have any investments that have gone down in value that you could sell, harvest the losses, and apply those losses to gains already recognized in other transactions? If so, it might make sense to use tax-loss harvesting to offset those gains and reduce the amount of net taxable income.  Any tax-loss harvesting transactions need to be completed by December 31st and would be subject to “wash sale” rules.
  3. Is there a desire to make sizeable gifts to family? The annual gift exclusion amount is $14,000 per person.  If you elect to split it with your spouse, you can exclude up to $28,000 per person per year.  If you make the gift by December 31, you can use this year’s exclusion and then turn around and make another gift to the same person on January 1st using next year’s exclusion, if you choose.
  4. Would you like to make a charitable gift before the end of the year? As long as your gift of anything other than an appreciated long term capital asset is made by December 31st, you are normally eligible to utilize the lesser of the Fair Market Value or cost basis of the asset donated as a tax deduction. A donation of an appreciated long term asset generally is eligible for a deduction of its increased Fair Market Value.  If you would like to take advantage of the tax benefit of a donation, but don’t necessarily know who you would like to donate to, a Donor Advised Fund may be an option for you.

If you have any questions, don’t hesitate to contact your financial advisor and, as always, consult your tax advisor to make sure the above mentioned items make sense for you.

Enjoy the Christmas music!  I will be sipping an Egg Nog Latte and pondering other exciting tax planning ideas.

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