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Four year-end tax strategies to consider

It’s hard to believe we’re fast approaching the end of 2015, but it’s time to start thinking about the 2015 tax season. Here are four simple yet effective tax minimization strategies to consider before the end of the year:

1.     Harvest capital losses. While the recent market volatility has been frustrating, it does provide opportunities to realize capital losses. With high-income taxpayers facing federal income taxes of up to 23.8% on long-term capital gains, harvesting losses can be an effective way to increase after-tax returns. Before the end of the year, offset gains in your portfolio by selling securities with losses. Be careful to avoid the “wash-sale” rule, which doesn’t allow you to claim losses when you buy replacement securities either before or after you sell substantially identical securities.

2.     Contribute appreciated securities to charities. Donating appreciated securities (held for at least a year) to charity can be a great way to minimize your taxes. You will receive a deduction for the fair market value of the security on your taxes. You’ll avoid paying capital gains tax on that security and the value of your contribution will be enhanced because the charity (as a tax-exempt organization) will also avoid paying capital gains tax when it sells the security.

3.     Donate your RMD to charity. Once you turn 70½ years old, you must begin taking minimum distributions from your retirement accounts (RMDs). If you don’t need the RMD to fund your living expenses, consider donating it directly to a charity. The rule allows you to donate up to $100,000. By doing this, you’ll avoid recognizing the RMD as taxable income. Note: the IRS has not reinstated this rule to date, but tax experts expect it to be reinstated before the end of the year.

4.     Optimize your taxes. In addition to harvesting capital losses and charitable giving, you should consider optimizing your tax situation. This means reducing your taxes by ensuring that your investments are in the most tax friendly accounts or, preferably in tax deferred accounts. Consider converting your IRA into a Roth by paying the IRA’s income taxes now, so you can enjoy tax free withdrawals later. High income business owners should consider taking advantage of a qualified retirement plan such as a cash balance plan. A cash balance plan can help high income earners deduct $300,000 or more from their gross income. If that’s not enough, a qualified plan is the only account that has total asset protection from creditors.
We are committed to helping you achieve your wealth management goals. If you would like to discuss any of these year-end strategies or the Ethical Wrap Program, please contact your financial advisor at 703-207-7005.

The information presented here is intended for educational purposes only and is not intended to provide, or should not be relied on for, accounting, legal, tax, or investment advice. Please consult with your tax advisor regarding your individual circumstances.

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