Lifepoint Financial Design – LifePoint Financial Services – Mike Metzger Financial Planning

By planning ahead and taking advantage of these time-proven tax strategies before taxes are due, you may be able to lessen your tax bite come April, or in today’s case, July.

As the tax deadline draws near, the last thing anyone actually wants to think about is taxes, am I right? But if you are looking for ways to minimize your tax bill, there’s no better time for tax planning than before the deadline. That’s because there are a number of tax-smart strategies you can implement now that could, potentially, reduce your tax bill come July. And with higher rates, being tax efficient is more important than ever.

Put Losses to Work

If you expect to realize either short- or long-term capital gains, the IRS allows you to offset these gains with realized capital losses. Short-term gains (gains on assets held less than a year) are taxed at ordinary rates, which range from 10% to 37%, and can be offset with short-term losses. Long-term gains (gains on assets held longer than a year) are taxed at a top rate of 20% and can be reduced by long-term capital losses.1 To the extent that losses exceed gains, you can deduct up to $3,000 in capital losses against ordinary income on that year’s tax return and carry forward any unused losses for future years.

Given these rules, there are several actions you might consider:

·  Avoid short-term gains when possible, as these are taxed at higher ordinary rates. Unless you have short-term losses to offset them, try holding the assets for at least one year.

· Take a good look at your portfolio before year-end and estimate your gains and losses. Some investments, such as mutual funds, incur trading gains or losses that must be reported on your tax return and are difficult to predict. But most capital gains and losses will be triggered by the sale of the asset, which you usually control. Are there some winners that have enjoyed a run and are ripe for selling(like those technology stocks you own)? Are there losers you would be better off liquidating? The important point is to cover as much of the gains with losses as you can, thereby minimizing your capital gains tax.

· Consider taking losses before gains, since unused losses may be carried forward for use in future years, while gains are taxed in the year they are realized.

Unearned Income Tax

A 3.8% tax on “unearned” income for high-income taxpayers effectively increases the top rate on most long-term capital gains to 23.8%. The tax applies to “net investment income,” which includes interest, dividends, royalties, annuities, rents, and other passive activity income, among other items. Importantly, net investment income does not include distributions from IRAs or qualified retirement plans, annuity payouts, or income from tax-exempt municipal bonds. In general, the tax applies to single taxpayers with a modified adjusted gross income (MAGI) of $200,000 or more and to those who are married and filing jointly with a MAGI of $250,000 or more.

What’s to Come?

While there are currently no scheduled changes in federal tax rules, there are many steps you can take today to help lighten your tax burden. Call our office to set up a complimentary consultation to see what you can do now to potentially reduce your tax bill in July. That granted extension is here before you know it.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal.  Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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