A baker’s dozen: 13 smart planning moves

Joseph Kubic |

The end of the year is fast approaching, and now is the perfect time to review items you might want to consider as you get set to enter 2016.

Let us stress that it is our job to assist you, and we would be happy to review the options that are best suited to your needs. When it comes to tax matters, we recommend you check with your tax advisor.

Investment and financial planning

  1. Is it time to rebalance your portfolio? Changes in the market can cause your asset allocation targets to shift. Now may be the time to consider adjustments. But let’s review what’s happened in your portfolio. In the unlikely case December finishes with a bang, 2015 won’t be a ‘three-peat’ and build on the impressive advances made in 2013 and 2014. That may minimize any tweaks to your targets.

In any event, any adjustments we might recommend should not generate a negative taxable event this year.

In other words, let’s be careful about taking profits in December when we can take them in January and push any capital gain into 2016.

  1. Review your income or portfolio strategy. Are you reaching a milestone in your life such as retirement or a change in your circumstances? If so, this may be just the right time to evaluate your approach.
  1. Take stock of changes in your life and review insurance and beneficiaries. Let’s be sure you are adequately covered. At the same time, it’s a good idea to update beneficiaries if the need has arisen. Circumstances in your life may have changed during the last year. Documents must be updated or you may deny intended beneficiaries their rightful inheritance.

Tax planning

  1. Mind the tax loss deadline. You have until December 31, 2015 to harvest any tax losses and/or offset any capital gains. But be careful. There are distinctions between short- and long-term capital gains, and you must be aware of wash-sale rules (IRS Publication 550).

Under IRS rules, you cannot deduct losses from sales or trades of stock or securities in a wash sale. A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

  • buy substantially identical stock or securities
  • acquire substantially identical stock or securities in a fully taxable trade, or
  • acquire a contract or option to buy substantially identical stock or securities.
  1. Gather the tax documents you’ll need to complete your tax returns. W-2s and 1099s won’t show up until next year, but everything from receipts for donations to business expenses will be needed if you are to minimize this year’s tax bite.
  1. This brings us to mutual funds and taxable distributions. If you buy a mutual fund on, say, December 15 and it pays a dividend and capital gain on December 17, you will be responsible for reporting the entire distribution, even if that distribution covers the entire year.

Following that payment, the net asset value of the fund will fall by the amount of the distribution, but your investment in the fund remains the same.

Ouch! That’s a tax sting that’s best avoided.

  1. Use it or lose it. As the year draws to a close, many people with a flexible spending account (FSA) for medical expenses must generally spend any savings or forfeit them.

Some FSAs offer a grace period, but when that grace period ends, the cash is gone, forever. Some plans allow up to $500 of unused money to carry over for use in the next year. Any unused amount in excess of the carryover amount is lost.

A plan may allow either the grace period or a carryover, but it cannot allow both (IRS Publication 969).

  1. Note inflation adjustments. Various tax benefits increase due to inflation adjustments for 2015 (IRS Publication IR-2014-104).
    1. The standard deduction rises to $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly, up from $6,200 and $12,400, respectively, for tax year 2014. The standard deduction for heads of household rises to $9,250, up from $9,100.
    2. The personal exemption for tax year 2015 rises to $4,000, up $50 from 2014. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $258,250 ($309,900 for married couples filing jointly). It phases out completely at $380,750 ($432,400 for married couples filing jointly.)
    3. Estates of decedents who die during 2015 have a basic exclusion of $5,430,000, up from $5,340,000 for estates of decedents who passed away in 2014.
    4. The annual exclusion for gifts remains at $14,000 for 2015.
    5. The exclusion from tax on a gift to a spouse who is not a U.S. citizen rises to $147,000, up from $145,000 for 2014.
    6. The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) rises to $2,550, up $50 dollars from 2014.
  1. Contribute to a Roth IRA. A Roth gives you the potential to earn tax-free growth (not just deferred tax-free growth) and allows for federal-tax-free withdrawals if certain requirements are met. There are income limits, but if you qualify, you may contribute $5,500, or $6,500 if you are 50 or older (IRS Retirement Topics - IRA Contribution Limits).

If you satisfy the requirements, qualified distributions are tax-free. You can make contributions to your Roth IRA after you reach age 70 ½. You can leave amounts in your Roth IRA as long as you live. The account must be designated as a Roth IRA when it is set up.

You may also be eligible to contribute to a traditional IRA, and contributions may be fully or partially deductible, depending on your circumstances. The same contribution limit that applies to a Roth IRA also applies to traditional IRAs. Total contributions for both accounts cannot exceed the prescribed limit.

Although we won’t hit the 2015 deadline until April 18, 2016 (IRS Publication 509), let’s start thinking about funding your account if your income permits (Note: If you are a resident of Massachusetts or Maine, Patriots' Day [April 18] delays the due date for filing your income tax return until April 19).  The sooner the account is funded, the sooner you begin taking advantage of tax-deferred or tax-free growth.

  1. Take required minimum distributions. Speaking of IRAs, RMDs are minimum amounts retirement plan account owners must withdraw annually, starting with the year they turn 70½ years old or, if later, the year in which they retire (IRS Retirement Topics - Required Minimum Distributions).

However, the first payment can be delayed until April 1 of the year following the year in which you turn 70½. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31 of the year.

The RMD rules also apply to 401(k), profit-sharing, 403(b), 457(b) or other defined contribution plan as well as SEP IRAs and  Simple IRAs.

Don’t miss the deadline or you could be subject to steep penalties! If an account owner fails to withdraw the RMD by the deadline or the distribution is not large enough, you may have to pay a 50% excise tax on the amount not distributed as required.

  1. Consider converting a traditional IRA to a Roth IRA. There are a number of items you may want to consider, including current and future tax rates, but if the situation is right, it can be very advantageous to convert to a Roth IRA.
  1. Establish college savings. Explore the advantages of a 529 college savings plan for your child or grandchild.

A 529 plan is operated by a state or educational institution, with tax advantages that make it easier to save for college and other post-secondary training for a designated beneficiary.

Earnings are not subject to federal tax and generally not subject to state tax when used for the qualified education expenses of the designated beneficiary. Contributions, however, are not deductible.

A second but more limited option includes a Coverdell Education Savings Account (IRS Publication 970). Total contributions for a beneficiary of this account cannot be more than $2,000 in any year. Any individual (including the designated beneficiary) can contribute to a Coverdell ESA if the individual's modified adjusted gross income for the year is less than $110,000. For individuals filing joint returns, that amount is $220,000.

However, contribution limits begin to get phased out at $95,000 for individual filers and $190,000 for joint filers. As with a 529 plan, contributions are not tax deductible.

  1. Do your charitable giving. Whether it is cash, stocks or bonds, you can donate to your favorite charity by December 31, potentially offsetting any income.

Did you know that you may qualify for what’s called a “qualified charitable distribution?”  A QCD is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified charity.

But there’s one small rub. QCDs, along with a number of “tax extenders” are expected to be renewed by Congress, but technically, they expired December 31, 2014 (IRS Charitable Donations from IRAs).

Assuming they are renewed with no changes, an IRA owner can exclude from gross income up to $100,000 of a QCD made for a year, and a QCD can be used to satisfy any IRA required minimum distributions for the year.

Married individuals filing a joint return could exclude up to $100,000 donated from each spouse’s own IRA, or $200,000 total.

Donations from an inherited IRA are eligible if the beneficiary is at least age 70½. Donations from a Roth IRA are also eligible.

You might also consider a donor-advised fund. Once the donation is made, you can realize immediate tax benefits, but it is up to the donor when the distribution to a qualified charity may be made.


We hope you’ve found this review to be educational and helpful, but remember, it is not all-encompassing. Once again, before making any decisions that may impact your taxes, please consult with your tax advisor.

Let us emphasize again that it is our job to assist you! If you have any questions or would like to discuss any matters, please feel free to give our team a call.


Let’s Get Started