Financial Insights

Year End Tax Tips

The 2016 tax year was relatively uneventful given the run-up to the election, with very little changed from last year and no last-minute changes expected from Congress. Any tax reforms proposed by the Trump administration cannot be adopted until 2017.

Below are a few year-end tax considerations to either reduce income taxes, estate/transfer taxes, or both. This list is not exhaustive and a conversation with your tax advisor is always recommended.

1) Harvest gains and losses before year-end, which is a classic year-end planning technique and one what we employ regularly at year-end for our client’s with taxable investment accounts.   If you have questions on your account or have considerations outside of your ACM accounts, then please contact your ACM Wealth Advisor.

2)Take Required Minimum Distributions (RMDs) from you qualified retirement accounts. This applies to those over age 70.5. The RMD amount is typically calculated on monthly statement for accounts custodied at Fidelity, however, these calculations do not take into consideration any retirement accounts (IRAs) held elsewhere. RMDs for 2016 are based on the total value of all of your qualified accounts as of 12/31/15, regardless of how many you have or where they are held.

3)Contribute to tax qualified accounts, such as your 401(k). Pre-tax contributions to your company sponsored retirement plan reduce your current taxable income. Contributions limits for 2016 are capped at $18,000 if you are under 50 years old and $24,000 if you are 50 or older.

4)Consider acceleration deductions or deferring income. If your employer allows you to defer salary and bonuses you will receive in 2017, then you must make the election to defer by December 31, 2016. You may also be able to increase your 2016 deductions by accelerating state and local income taxes, mortgage interest and real estate taxes.   The benefits of these deductions may be limited for those taxpayers subject to the Alternative Minimum Tax (AMT) so please consult your tax advisor.

5)Use your Flexible Spending Account (FSA) balance before you lose it. Not to be confused with Healthcare Spending Accounts (HSAs), FSAs can help you spend less money on health care while you are working, but only if you use all of the money you’ve contributed by year end. In other words, FSA funds are “use it or lose it” and any unused portion after the end of the year is no longer yours.   If you have any FSA funds remaining , then check the IRS list of approved medical expenses and check with your employer to see if your employer offers either a rollover option (which allows you to move up to $500 to next year’s balance) or a grace period (which provides up to 2 ½ months past the end of the year to use your funds).   Your FSA likely has one of these options, but cannot have both under IRS rules.

6)   Use your annual gift tax exclusion, which is one of the easiest ways to maximize tax-efficient wealth transfer to the next generation and others. The annual exclusion for 2016 allows individuals to gift up to $14,000 and married couples to gift up to $28,000 to as many individuals as they wish without triggering any gift or generation skipping transfer tax. Any amounts exceeding the annual exclusion amount are taxable gifts, however, these amounts can be applied against your individual lifetime gift tax exclusion, which is $5,450,000 per individual or $10,900,000 per married couple for 2016.


7)   Donate to charity, which we covered in our 2015 year-end planning note. Charitable deductions remain valuable in the current income tax rate environment. You can donate by check, or by transferring securities (particularly those that have appreciated) or other assets or by using your RMDs (qualified charitable deduction) or by using a Donor-Advised-Fund. If you are unsure of the differences between these options, then it is advisable to review how much and to whom you are planning to give and to time your gifts properly.


1 AGI: Adjusted Gross Income.  Contributions in excess of percentage limitation may be carried forward for use in the taxpayer’s five succeeding tax years.  2 Non operating foundations only.  3 Taxpayers can elect to make a “step-down election” such that long-term capital gain property donated to a public charity is deductible up to cost base and up to 50% of AGI, but this election would apply to all contributions of this type of property for the year.  4 Lesser of cost or fair market value.  5 If related-use property has been held as a capital asset (not ordinary income property) for more than a year, taxpayer can elect to deduct at cost basis up  to 50% of AGI, or deduct the fair market value for contributions made to a public charity or private operating foundation up to a limit of 30% of AGI.



The foregoing content reflects the opinions of Advisors Capital Management, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.


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