TOPIC FOCUS: 5 Year-End Tax Strategies You Don’t Want to Miss

Read the article and answer these questions.

1. What is the main thing people should never forget in their life about?

2. How is a Charitable Remainder Trust related to your donations and taxes?

3. What can help reduce future tax liabilities?

4. Are there any advantages if you contribute to a Health Savings Account?

5. What should be done to minimize taxes when we are retired?

 

The end of the year can be a hectic time. With the holiday season in full effect, we find ourselves cooking, shopping, and entertaining friends and family. But one thing many people forget about is taxes. Here are five things you may want to consider before year-end to help reduce your tax liabilities now or in the future:

Set Donations Aside With a Charitable Remainder Trust (CRT)

There are great tax incentives for charitable donations. However, many people don’t take advantage of this tax benefit because they believe the money must be given away immediately. With a charitable remainder trust, you can maintain control of the asset and take income from it while you are still alive. At the same time, you will enjoy a tax deduction in the year you transfer the asset to the trust even though the charity doesn’t receive the funds until you pass away. You can use this strategy to sell investments with a lot of unrealized growth and spread the capital gains taxes owed. 

Offset Capital Gains Taxes With Tax-Loss Harvesting

This strategy involves realizing gains or losses (or both) in your investment portfolio for tax purposes. If this is done properly, the investor can minimize the taxes paid on capital gains and maximize the tax benefits of capital losses. This can also help reduce future tax liabilities, which is a concern for people who think their capital gains taxes may be higher down the road. 

Contribute to a Health Savings Account

You must be part of a qualified high-deductible health plan (HDHP) to receive the tax benefits of a health savings account (HSA) contribution. But if you do qualify, this is one of the best tax advantages available. The tax deduction is an above-the-line deduction similar to an IRA (Individual retirement account) contribution. However, unlike an IRA, the funds can be taken out tax-free if they are used for qualified medical expenses. This means you receive the tax deduction upfront, the money grows tax-deferred, and it comes out tax-free for qualified medical expenses.

4. Convert Retirement Account to a Roth* IRA

It is never easy paying more taxes than you need to. You can calculate the exact amount that should be converted each year to minimize the taxes due. Also, the taxes owed on the conversion can be offset using some of the strategies discussed above.

*Senator William Roth

Take Advantage of Tax Forecasting

Everyone has a unique tax situation. By working with a professional who can offer tax forecasting software and services, you can clearly see the net effect of implementing some or all of these strategies. 

December can be a busy time of year and it is always easy to procrastinate, especially when the subject is taxes. But for some people these strategies could mean thousands of dollars in tax savings.  

 

By Ali Hashemian, MBA, CFP® December 7, 2017

INVESTOPEDIA

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