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Year-End Tax Planning: Strategies for Advisors

Moves that can minimize your clients’ upcoming tax liabilities

Sheryl Rowling


As the end of 2017 approaches, there are several tax planning moves you can make for your clients to minimize their upcoming tax liabilities. Not every option will work for every taxpayer. However, with a little planning, you might save your clients a lot of money.

It may seem futile to plan when there are new tax proposals on the table. But at this point, we can feel certain that any tax law amendments will result in either no change or a decrease to your clients’ tax bills. With that in mind, let’s take a look at some year-end tax planning strategies.

4 year-end tax planning strategies

  1. Recognition of income and expenses. Traditional year-end tax planning looks to accelerate expenses and defer income. This keeps your clients’ taxable income as low as possible in the current year. There are various tactics to achieve this, such as postponing non-required IRA withdrawals, tax-loss harvesting, and prepaying property taxes. With the proposed top rate dropping to 35 percent from 39.6 percent, many of your clients might expect lower tax rates next year. Therefore, deferring income and accelerating deductions can be especially beneficial this year. There are times when this strategy does not make sense—for example, when a client is expecting a higher tax bracket the following year. In this case, you may want to recommend recognizing as much income as possible in the current year and delaying the expenses until the following year. Even if your client is not expecting to be in a higher tax bracket, it might make sense to postpone some deductions that are currently subject to the Alternative Minimum Tax, or AMT. For example, clients subject to the AMT do not get a tax benefit for state or property taxes paid. Thus, waiting to pay these expenses in 2018 could convert a non-deductible expenditure to a deductible expense should the AMT be eliminated. 
  2. Roth conversions. If you have clients in a low tax bracket, they might be able to convert a portion of their IRAs to Roth at little to no extra tax cost. Whenever IRA money is converted to a Roth IRA, tax is due on the amount of the conversion in the year of the conversion. The money in the Roth IRA will then grow tax-free for the remainder of the owner’s life and can pass to heirs income-tax free. Distributions from a Roth IRA are also tax-free, and there are no required minimum distributions.
  3. Prepaying state taxes. If your client is in AMT, there is no federal tax savings from paying a fourth-quarter estimate or estimated state balance due by Dec. 31, 2017. Waiting until 2018 to pay could mean no more AMT (based on current tax proposals), but it could also result in no deduction since eliminating state tax deductions is also proposed. So if your client is in AMT, don't recommend prepaying state taxes. At worst case, at least they will benefit from the time value of money. If your client is not in AMT in 2017, your client should prepay because there is a chance that no deduction will be allowed in the future.
  4. Charitable giving. Charitable giving can reduce tax liabilities even for clients that are subject to the AMT. There are several options when it comes to charitable giving. If your client has a high-income year, a donor-advised fund could be very beneficial. With such a fund, the donor receives a deduction in the year of his or her contribution to the fund. The money stays in the fund and earns income tax-free until the donor decides to make distributions to charity, either right away or over time. An especially tax-efficient way of contributing to a donor-advised fund or specific charity is by donating appreciated stock or mutual fund shares. The client will receive a deduction for the full fair market value without paying tax on appreciation. The advisor can provide essential assistance by identifying holdings with the greatest accumulation of unrealized gains.

Using these year-end tax planning strategies to proactively save clients' tax dollars can up your game and increase client satisfaction. Want more? Watch a recording of our webinar on year-end tax planning strategies.

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