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Year-end Tax Planning Ideas

As we approach the end of the year, we thought we would put together some year-end tax planning ideas for you to consider.  This list is not intended to be exhaustive. 

1.)    Mutual Fund Distributions: review the size of planned distributions at year-end.

Treybourne Wealth Planners (TWP) is in the process of reviewing the distribution estimates for mutual funds that you may hold.  We are reviewing to see if it might be worthwhile to sell out of the fund before the distribution record date.  This would allow our clients to avoid the distribution and related tax where these funds are held in a taxable account.  We will also avoid purchasing new mutual funds where large distributions are anticipated. 

2.)    Capital gains: reduce your liability through tax loss harvesting

TWP is in the process of reviewing taxable accounts for holdings where an unrealized loss may exist.  We will analyze whether there is benefit to selling these funds before year-end to recognize the loss for tax purposes, while substantially preserving your investment position. 

3.)    College education funding: 529 contributions

Consider contributing to a 529 plan for college education purposes.  If you are an Indiana resident and contribute to the Indiana CollegeChoice 529 plan, a 20% state tax credit for up to $5,000 of contributions per year can be claimed against Indiana income tax (maximum yearly credit is $1,000).  Here is the website for the Indiana CollegeChoice 529 plan.  https://www.collegechoicedirect.com/  TWP would be glad to help you establish an account.  Contributions must be funded before the end of the year.  If you are a resident of a different state, we can help you determine potential state tax benefit if interested.  

4.)    Charitable contributions: impact your charity and your state tax bill

Review your charitable contributions if you plan to itemize for 2016.  Review contributions you can make where there may also be state tax credits.  Remember to have appropriate documentation.

  1. College credit: if you donate money or property to an Indiana college or university, you may be able to take an Indiana tax credit.  Remember, tuition paid does not qualify for this credit.  If not an Indiana resident, we can help you review the rules in this area of the tax law for your state.
  2. School scholarship credit: this credit is available for individuals or corporations who donate to scholarship-granting organizations (SGOs).  Donors who donate to an SGO approved by the Department of Education will then be eligible to take advantage of a 50% credit against their state tax liability.  The donation also qualifies as a Federal charitable deduction.  Check out this website to learn more: http://www.in.gov/dor/4305.htm. Check out the list of participating schools here:  http://www.doe.in.gov/sites/default/files/choice/sgo-participating-schools-2016-updated-112116.pdf.  Again, if not an Indiana resident, we can help you review the rules for your state. 

5.)    Consider donating long-term appreciated securities

Consider gifting long-term appreciated stock to charity where you as the taxpayer can take a tax deduction for the full market value of the securities.  Since the securities are donated rather than sold, capital gains taxes from selling the securities no longer apply.  The more appreciation the securities have, the greater the tax savings will be. 

6.)    Required minimum distributions: ensure you are taking all required minimum distributions (RMDs)

TWP reviews all accounts and works with our clients to meet their required minimum distribution(s) (RMDs)for 2016.  It is still good for clients who are over 70 ½ to review all of their assets and ensure that their RMD requirements are being met.  Also, if you have inherited an IRA, it is important for you to understand the RMD requirements from that IRA.

7.)    Consider a ROTH IRA conversion

If you expect a lower marginal rate for 2016, consider converting traditional IRA money into a ROTH IRA if eligible to do so.  Keep in mind, however, that such a conversion will increase your Adjusted Gross Income (AGI) for 2016. 

8.)    Gifting: annual exclusion of $14,000

Remember an individual can gift $14,000 under the annual gifting exclusion rules.  Unused exclusions cannot be carried over.  Review if this option makes sense for your circumstances.

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Greenwood, Indiana 46142
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