Investor’s column: Year-end tax tips for 2017

There have been serious proposals involving lowering federal income tax rates. While some details have emerged, there are many specifics that need to be worked out by Congress.

Keep that in mind when considering some of these tax tips for this year.

1. Defer your income. Income is taxed in the year it is received. If possible, consider deferring some income until next year. While it is difficult for employees to postpone wage income, you may be able to defer any bonuses into the new year. If you are self-employed, consider delaying billings until late in December. This will ensure that you won’t receive payment until next year. Remember, it only makes sense to defer income if you think you will be in the same or lower tax bracket next year.

2. Take some last-minute tax deductions. As you may want to defer income until next year, you may also want to consider lowering your tax bill by accelerating deductions this year. Giving to a charity is a good way to get a deduction. Donate appreciated stock or property rather than cash. If you owned the asset for more than one year, you may get a double tax benefit from the donation.

3. Sell the losers to offset the winners. This key year-end strategy is called “tax loss harvesting.” This involves selling investments such as stocks, bonds and mutual funds to realize a loss. Here are the steps taken to net the process. Short-term losses are netted against short-term gains. Long-term losses are netted against long-term gains. You net your gains against the losses. If there is a net gain, the short-term gains are taxed as ordinary income. Any long-term gains are taxed at the appropriate long-term gain rates – fifteen percent for most long-term gains up to a certain income threshold. If there is an overall loss up to $3,000, it can be deducted against ordinary income. Any excess loss can be carried forward indefinitely.

4. Contribute the maximum to retirement accounts. Company sponsored 401(k) retirement accounts may be the best because employers often match contributions. Don’t forget that with IRA’s, you have until April 17, 2018, to make contributions.

5. Beware IRA distributions. You must begin taking required minimum distributions from your traditional IRA by April 1 after the year in which you reach 70 1/2 . One of the worst penalties the IRS applies is an excise tax of 50 percent on the amount you should have withdrawn based on your life expectancy. These rules do not apply to Roth IRA’s.

6. Beware of the wash sale rule. It states that if you sell an investment for a loss and you reacquire an investment identical to the one you sold either 30 days before the sale or 30 days after the sale, for a total of 61 days, the wash sale rule applies and the loss is disallowed.

7. Set financial goals for 2018. Reassess your retirement goals with your financial adviser to make adjustments if necessary. Planning your taxes efficiently takes time and effort as well as experience. If you are a mutual-fund investor, do not purchase any mutual funds at year end if you don’t know what that mutual fund is going to declare in capital gains for the year. Your financial adviser should be working hard to provide tax efficient investment strategies to minimize the effect it has on your bottom line.

One idea for next year: Long-term care. It is critically important. Make 2018 the year you look into it.

This story was originally published November 27, 2017 at 10:54 AM with the headline "Investor’s column: Year-end tax tips for 2017."