Financial Focus: Consider these year-end, tax-smart financial moves (column)
November 30, 2017
With the holiday season upon us, you may be getting pretty busy. But once the holidays are over, you'll enter into a new season: tax season. The filing deadline for the 2017 tax year is April 17, 2018, but until that date — and especially before the end of the calendar year — you may want to explore some tax-smart financial moves.
Here are a few to consider:
• Boost your 401(k) contributions. If you're like most people, then you probably don't usually contribute the maximum amount to your 401(k), which, in 2017, is $18,000, or $24,000 if you're 50 or older. Unless you have a Roth 401(k), your contributions are made with pre-tax dollars, so the more you put in, the lower your taxable income.
Ask your employer if you can increase your 401(k) contributions in 2017. Also, if you receive a bonus before the year ends, then you may be able to put that toward your 401(k), too, thus deferring the taxes you'd have to pay on this extra income.
• Add to your IRA. You have until the April 17 deadline to contribute to your IRA for the 2017 tax year, but the more you can put in now, the less you'll have to come up with at the filing deadline. Contributions to a traditional IRA are generally deductible, but the deductibility is phased out if your income rises above certain levels. For 2017, you can put up to $5,500 into your IRA, or $6,500 if you're 50 or older. (Roth IRA contributions are never deductible.)
• Contribute to a 529 plan. When you contribute to a 529 college savings plan, your earnings can grow tax-free, provided the money is used for qualified higher education expenses. (However, 529 plan distributions not used for these qualified expenses may be subject to income tax and a 10 percent IRS penalty.) Furthermore, your 529 plan contributions may be deductible from your state taxes.
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• Be generous. It's certainly the season for giving, and when you make charitable gifts, you can give and receive. By sending cash to a qualified charity, you may get a tax deduction, but if you look beyond your checkbook, then you might gain even bigger benefits. Specifically, if you donate appreciated securities you've held for more than one year to charity, then you may be able to deduct the value of the securities, based on their worth when you make the gift.
• Offset your gains. If you own some investments that have lost value and may no longer be essential parts of your portfolio, then you could sell them and use the loss to offset capital gains taxes on investments you've sold that have appreciated. If the loss from the sale was greater than your combined long- and short-term capital gains, then you can deduct up to $3,000 against other income, including your salary and interest payments. And if your losses exceed your capital gains by more than $3,000, then you can carry the remaining losses forward to future tax years.
Following these suggestions may help improve your tax situation for the year. So, give them some thought and consult with your tax professional to understand what actions are appropriate for you.
This article was written for use by local Edward Jones financial advisors. Edward Jones and its associates and financial advisors do not provide tax or legal advice. Chuck Smallwood, Kevin Brubeck, Tina DeWitt, Charlie Wick and Bret Hooper are financial advisors with Edward Jones Investments and can be reached in Edwards at 970-926-1728, in Eagle at 970-328-4959 or in Avon at 970-688-5420.