2017 Year End Tax Planning Strategies

2017 Year End Tax Planning Strategies

December 12, 2017

Since the likelihood for comprehensive tax reform is high, now is an optimal time to position yourself for change. Although new provisions won’t likely go into effect until 2018 or later, they could still impact 2017 year-end planning. Reforms, if enacted, will likely bring lower rates, particularly for business income, so be prepared to accelerate deductions (worth more at higher tax rates) and defer income so it can be taxed at lower rates. Here are a few additional things to keep in mind.

Maximize Value of Gift and Estate Tax Exclusions

Consider using lifetime as well as annual gift, estate, and generation skipping tax exclusions while you’re alive. You can give $14,000 in 2017 to each of an unlimited number of individuals. Married couples may gift up to $28,000 if they elect gift-splitting. The annual gift exclusion will increase for the first time since 2013 to $15,000 per year beginning in 2018.

Use the AMT to your Advantage

If you believe you’ll be subject to the alternative minimum tax (AMT) in 2017, consider accelerating ordinary income items such as IRA distributions, which would be taxed at 28% under the AMT rather than at rates as high as 39.6% under the regular tax. That said, if you expect to be subject to the AMT again next year, you probably don’t want to accelerate tax.

Maximize your 401(K) Contributions

If you are a participant in a traditional employer-sponsored defined contribution plan, the 2017 contribution limit for a 401(K) is $18,000 with an additional $6,000 catch-up allowed for individuals 50 and older. Consider contributing from a year-end bonus to take advantage of the maximum contribution. Beginning in 2018, the contribution limit is set to increase to $18,500. The catch-up contribution remains the same as $6,000.

Contribute to an IRA

If your employer does not offer a retirement plan, consider a traditional or Roth IRA. The 2017 contribution limit on IRAs is $5,500 with an additional $1,000 catch-up for taxpayers 50 and older. With a traditional IRA you can likely deduct your contribution. Roth IRA is tax-free as long as it is made 1) after a 5 year period, and 2) on or after attaining age 59 ½, after death or disability, or for a first-time home purchase.

Consider a Roth IRA Conversion

You may be able to convert a traditional IRA into a Roth IRA. You will have to pay taxes on the amount converted as ordinary income but younger investors will have a long time to then potentially grow the Roth IRA account with income tax-free.

Don’t forget to take Required Minimum Distributions (RMD)

There’s a hefty 50% tax penalty for failing to take a required minimum distribution (RMD) before December 31 if you’re 70 ½ or older, or have an inherited IRA.

Make Tax-Deductible Charitable Contributions

Tax-deductible charitable contributions can help reduce your taxable income. Contributing appreciated securities has multiple benefits: you receive a tax deduction for making the gift, and avoid a future capital gain tax liability from your investments. This will also prevent the gain from being subject to the 3.8% surtax on net investment income. The charitable organization gets the same benefit and doesn’t owe taxes upon receipt or sale of the shares.

Fund a College Savings Plan

If you have family or friends with college savings needs, you might wish to consider funding a college savings plan before year-end. Consider looking at a 529 plan which withdrawals for qualified expenses federally tax free and state tax deductions in many states but this may vary.

Life Events

Did you get married, divorced or have a child during 2017? Did you change jobs or become an equity owner at your place of employment? Did you relocate to a new state, buy or sell a principal residence, or start or terminate a new business? All of these life changes may require reviewing your financial goals with your financial advisor to maintain customized wealth management strategies.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individuals. To determine which investments may be appropriate for you, consult with your financial advisor. 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. 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 may result in a 10% IRS penalty tax in addition to current income tax. The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change. 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 subjected to income taxation. Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.