Wednesday, May 12, 2021

Before the Clock Strikes Midnight…



Ask The CFP® Practitioner
Darcie Guerin

“Opportunities are seldom labeled.”
~John Augustus Shedd

Question: Are there any tax planning strategies I should think about before year-end?
Answer: Yes, there are income-timing approaches, tax-deferred growth strategies, charitable giving plans, and tax-advantaged investments to consider before the clock strikes midnight on New Year’s Eve. With the deadline fast approaching, now’s the time to take action.

Start by reviewing your goals and investments as they relate to the current tax environment. Then decide if making adjustments would place you in a better position for 2014 and beyond.

Because you can’t play the game if you don’t know the rules, we need to highlight a few of the recent tax law changes. Remember, it’s what you keep, not what you make that matters.

Hey Jack, that’s a fact

Recent legislation raised income taxes for most people. For those in the highest brackets, rates rose from 35% to 39.6%, and capital gains and dividend tax rates increased from 15% to 20%. *High-income taxpayers are defined as individuals with MAGI in excess of $200,000 or married couples filing jointly in excess of $250,000. For a ballpark idea of your modified adjusted gross income (MAGI), look at line 37 on your 2012 Form 1040.

During 2013, the largest tax provisions of the Patient Protection and Affordable Care Act (Obama Care) took effect. Various high-income taxpayers may face an additional 0.9% Medicare tax on some wages and 3.8% on net investment income or a portion of their income. Meanwhile, the 2011 temporary cut to Social Security payroll taxes was not extended, increasing it from 4.2% to 6.2%.

But wait, there’s more!

Certain itemized deductions will be limited, reducing their value by 3% of adjusted gross income in excess of $250,000 for individuals, and $300,000 for joint filers (but no more than 80% of impacted itemized deductions). This phase out applies to charitable contribution deductions, state income and property taxes, and miscellaneous itemized deductions. In addition, the maximum federal gift and estate tax rate increased to 40%. Bottom line, ouch!

Here are eight financial planning conversation starters to help you focus on potential year-end planning opportunities.

1. Have an income strategy. Determine when you should realize long-term gains and harvest capital losses. Offset investment gains with losses, as appropriate, to reduce your overall tax liability which may include the new Medicare surtax. Also, decide if it may make sense to accelerate or defer any income such as bonuses, severance, or retirement payments. Moreover, if taxes are a concern, you may want to think about using municipal bonds for federally tax-exempt income.

2. Trustees of irrevocable trusts should evaluate if it is advantageous to distribute income to beneficiaries. If trust income is retained it could be subject to the 3.8% Medicare surtax. Make these decisions within the boundaries of the trust’s governing instrument and state law.

3. Be aware of “wash-sale” rules. These disallow deducting capital losses on sales of a particular security if you initiate a similar position within a 61-day period (30 days before the sale date and 30 days after the sale date). The rules apply across your portfolio, in both taxable and nontaxable accounts. Therefore, you cannot liquidate a position in one account and establish a similar position in your IRA.

4. Look at retirement accounts and make sure they’re geared toward today’s goals based on your current age, net worth, income needs, and other considerations. Don’t forget to include company sponsored retirement plans. Too often, asset allocations don’t change in response to the passage of time. “Set it and forget it” shouldn’t be the default for retirement accounts.

5. If you’re working, maximize retirement contributions to take advantage of tax-deferred growth. If you’re retired, determine if you need to take required minimum distributions (RMD’s) from your retirement accounts or annuity distributions.

6. Review the titling and ownership of assets and accounts, as well as beneficiary designations so they reflect current wishes and family dynamics. Consider whether a trust or donor-advised fund (DAF) will help meet your legacy and tax-savings objectives.

7. Evaluate and update estate plans in light of the 2012-2013 tax law changes. The annual gift exclusion is $14,000 and the lifetime exemption is $5,250,000. These higher limits allow you to transfer wealth without triggering a gift tax liability. Think strategically about charitable contributions and donate low-cost basis stocks or highly appreciated assets rather than cash.

8. Discuss life changes with your advisors. Whether you’ve retired, sold a business, are building an addition to your home, or are expecting a new addition to the family, your financial advisor can help you maximize the financial implications and identify opportunities. For instance, College Funding 529 Plans not only help you efficiently save for education needs, but also may be an estate planning and/or tax tool in certain situations.

We’ve just covered a year’s worth of financial planning, so don’t delay; discuss these concepts with your team of professionals before the clock runs out. What you do next matters. Stay focused and invest accordingly.

The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. We do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, or state and local taxes. Municipal bond investments may involve risk if sold prior to maturity, credit risk and interest rate risk. Diversification and strategic asset allocation do not ensure a profit or protect against a loss. Investing always involves risk and you may incure a profit or loss. No investment strategy can guarantee success.

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame design) in the U.S.”


Darcie Guerin, CFP®, is Associate Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at 239-389-1041, email


Leave a Reply

Your email address will not be published. Required fields are marked *