4 End of the Year Tax Considerations

I, for one, am all for paying taxes later.  I’ve never been in the mode to pay my taxes any earlier than I need to. But this year may be different!  It seems to me that it is very apparent that we will have higher tax rates next year.  Can I predict that with certainty?  Absolutely not, but I feel strongly enough about it that I think you should be thoughtful about these opportunities.

Consider the following things:

  1. Do you have capital gains that you can harvest?
  2. Is there income you could take this year?
  3. Are there deductions that should be pushed back to next year?
  4. Do you have retirement accounts that could be converted to Roth IRAs?

If you believe taxes are going to go up next year significantly.  Now not only am I trying to predict the future which is impossible, I’m trying to get you to guess how much the change will be.  But depending on your beliefs I think you should consider the above.

If you have capital gains that can be harvested before year end without adverse consequences or making them short-term capital gains I think this should be considered because of the likelihood of capital gains tax going up.

If there is profit or income that can be taken this year, even though we have to pay tax sooner, considerate it.  If tax rates go up five to 10% next year I think that is a good return on paying our taxes earlier.

Do you pay your state taxes early for deduct ability purposes?  Or do you have deductions or expenses that you are going to take in the next few weeks that could be put off to next year.  It may be advisable.

If you have IRAs especially if you are in a lower bracket than you may be in future years does it make sense to convert these to Roth IRAs either for yourself or your beneficiaries that will ultimately receive this money?  Of course this all depends on your circumstances, beliefs and willingness to pay more taxes this year on the thought that next year’s taxes will be more.  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 ½ 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.

Set a time to talk to your accountant, tax person or advisor soon about your planning opportunities and what you can control before the end of the year.

Each of you is unique in your circumstances, desires, priorities and beliefs.  Make decisions thoughtfully.


Wayne von Borstel, CLU, ChFC, CFP®, MSFS

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.


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