As of this writing, Congress is attempting to reform our tax code. While changes are common with every new presidential administration, an initiative so transforming as to be called “tax reform” is quite unusual — the last major tax overhaul happened during the Reagan administration in 1986.1
According to Fox News, some who may benefit from the proposed President Trump/GOP tax plan could include the highest and lowest income households as well as corporations with high tax rates. Residents in high-tax states, beneficiaries of social programs, and tax accountants and others who help people prepare their taxes each year are more likely to be negatively affected.2
Taxes are a complicated matter, and like all personal financial planning, no strategy is going to work for everyone. For people who have complex components to their tax situation, it’s a good idea to get professional advice from a qualified tax professional — particularly when it comes to year-end strategies that may be beneficial come tax season. We are happy to help our clients consider the possible tax ramifications of recommendations we make regarding their financial portfolios. If you’d like more information, please give us a call.
You still have time to take steps to address your 2017 tax situation, including considering factors regarding an IRA account. For example, income earners may want to maximize their 2017 IRA contributions to help save for retirement. Bear in mind that you have until April 17, 2018, to make 2017 IRA contributions.3
For people age 70 ½ or older this year, remember to take your 2017 required minimum distribution (RMD) by Dec. 31, 2017. If you turned 70 ½ in 2017, you have until April 1, 2018, to make the RMD. Also note that you must calculate the RMD separately for each IRA you own (not including Roth IRAs). However, the IRS does permit the full withdrawal to come from just one non-Roth IRA account. Those who fail to make RMDs by the deadline may be subject to a 50 percent excise tax on the undistributed amount.4
If you have a health care flexible spending account (FSA), check to see how much money you have left to spend this year. If you don’t use it up you could lose it, so consider scheduling end-of-year appointments and buying a new pair of prescription glasses or contact lenses, hearing aids or eligible medicines you’ll need in 2018. Be sure to submit those receipts for eligible expenses by your plan’s deadline to get reimbursed with 2017 funds. Also note that some employer plans permit an extra 2.5 months to continue using flexible spending account funds, but you’ll need to confirm whether yours does or not.5
If you’re considering investing a large sum in a mutual fund by year-end, check the fund company’s website to find out when that fund declares its dividend. If you buy shares before the dividend is declared, this will increase your income and subsequently your tax liability.6
If you’re looking for a state tax deduction, consider contributing to a 529 college savings plan for a child or grandchild by the end of the year. However, you’ll need to see if the state sponsoring the 529 allows a tax deduction, and the amount permitted. Note that 529 contributions are not deductible on federal tax returns.7
Taxpayers who were victims of one of this year’s declared disasters who need copies of previous tax returns can get them free via the IRS Get Transcript tool at IRS.gov or by calling 800.908.9946 to order them by phone.8
Content prepared by Kara Stefan Communications.
1 Lisa Desjardins. PBS NewsHour. Sept. 12, 2017. “America’s long, complicated history with tax reform.” https://www.pbs.org/newshour/politics/americas-long-complicated-history-tax-reform. Accessed Nov. 21, 2017.
2 Kaitlyn Schallhorn. Fox News. Oct. 26, 2017. “Trump’s tax reform plan: Who are the winners and losers?” http://www.foxnews.com/politics/2017/10/26/trumps-tax-reform-plan-who-are-winners-and-losers.html. Accessed Oct. 31, 2017.
3 IRS. Oct. 24, 2017. “IRA Year-End Reminders.” https://www.irs.gov/retirement-plans/ira-year-end-reminders. Accessed Oct. 31, 2017.
5 H&R Block. 2017. “Year-End Tax Tips.” https://www.hrblock.com/tax-center/filing/year-end-tax-planning/. Accessed Oct. 31, 2017.
7 eFile. 2017. “Year-End Tax Estimate and Planning Tips for Tax Year 2017.” https://www.efile.com/tax-estimate-and-tax-planning-tips/. Accessed Oct. 31, 2017.
8 IRS. Oct. 4, 2017. “Tips for Individuals Who Need to Reconstruct Records After a Disaster.” https://www.irs.gov/newsroom/tips-for-individuals-who-need-to-reconstruct-records-after-a-disaster. Accessed Oct. 31, 2017.
The content provided in this blog post is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market or recommend any tax plan or arrangement. You are encouraged to consult your personal tax advisor or attorney.
We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
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