6 Tax Planning Tips To Consider For 2017
2. Review your taxable account investments. Consider using tax-efficient mutual funds or separately managed accounts that strive to limit the number of taxable events inside your portfolio. With combined federal and state capital gains rates possibly totaling over 30 percent, buy-and-hold strategies may be a suitable option for some investors.
4. Realize tax losses throughout the year. Consider selling investments that are at a loss; by doing so you can generate a tax deduction. You are allowed to realize annual net investment losses of up to $3,000, and this can be used to lower taxable income or offset gains that have been realized. When you sell at a loss, there are rules governing how you can then reinvest those proceeds; so be sure to adhere to the “wash sale rules.” These rules stipulate that you cannot reinvest those same proceeds into a nearly identical investment for the 30-day window before or after the sale. If you do, you may not be entitled to recognize your tax loss.
6. Consider a Roth IRA conversion for longer-term tax benefits. As noted above, there are some income limits which may preclude some investors from contributing to a Roth IRA; but anyone with assets in an employer-sponsored retirement plan or Traditional IRA can complete a Roth conversion without being subject to income limits. You can convert eligible funds from your employer-sponsored retirement plan or Traditional IRA into a Roth IRA. At conversion, you create a taxable event whereby you must pay taxes on the amount converted as ordinary income for the year of conversion distribution (except if a portion is treated as a return of any after-tax IRA contributions). Younger investors have a longer time period to then potentially grow the Roth IRA account and make up for the tax paid at conversion. Therefore a Roth conversion may have greater benefit for younger investors. Remember that Roth IRA contributions are made with after-tax dollars, and since gains inside a Roth IRA may not be subject to income tax, qualified distributions can be federal income tax free—but this is provided you adhere to the IRS guidelines—so be careful if you need to make any withdrawals from a Roth IRA prior to age 59.5.