by Laura Navarro
The end of the year is a busy time spent with friends and family during holiday celebrations. Consequently, most people aren’t thinking about financial “spring cleaning.” However, carving out time to organize and visit the following items will prove to be a valuable exercise before the new year.
1. Check Your Portfolio and Consider Rebalancing – Discuss rebalancing strategies with your financial professional. Simple market movements can alter your asset allocation over time. It is also a good idea to revisit your portfolio risk level to see if any changes should be made. Keep in mind that rebalancing retirement accounts does not trigger taxes, while rebalancing non-retirement post-tax accounts may. However, avoiding taxes should not be the sole reason not to rebalance.
2. Tax-Loss Harvest – Enlist the help of your tax professional and/or financial professional to determine if you have any losses in your taxable account. If so, you may want to “harvest” them by realizing the loss through liquidating the partial or full position to offset any gains. Generally speaking, any unused losses can be used against ordinary income up to $3,000 per year and the remainder may be carried forward into future years.
3. Take Your Required Minimum Distribution (RMD) or Minimum Required Distribution (MRD)
A) Traditional IRAs & Qualified Retirement Accounts – If you are 70 ½ years or older, you are required to take minimum distributions from your Traditional IRA account(s). More often than not, this same requirement applies to qualified retirement accounts, especially if you are no longer working. The IRS imposes a stiff penalty if withdrawals are required but not taken.
B) Inherited Beneficiary IRAs – There is no age requirement and you must begin RMDs by December 31st of the year after the year of the original account owner’s death. Another set of time rules may apply if you are the spouse on an inherited IRA and the account owner dies before his/her required beginning date. Please consult your financial professional if this applies to you.
4. Pay Estimated Taxes – If you are required to pay estimated taxes, make sure that you’ve done so in a timely manner. If not, penalties may apply.
5. Use your Health Flexible Spending Accounts Fully – As they say, “Use it or lose it.” Now is the time to submit out-of-pocket claims for doctor, dental, and optometrist expenses. You may be able to rollover up to $500 of unused funds to the following year if your plan allows for it.
6. Accelerate Medical Expenses – For those age 65 or older, the deductible portion of medical expenses is the amount of out-of-pocket medical costs paid for in 2016 which totals above 7.5% of your adjusted gross income. Starting in 2017, the medical expense deduction threshold increases to 10% of adjusted gross income for all taxpayers. Consider incurring elective qualified medical or dental procedures in 2016. This applies only if you itemize deductions on your tax return. If you utilize the standard deduction method, you cannot claim these expenses.
7. Tax Review – Consult your tax professional to see if there is anything you can do in the final weeks of the calendar year to minimize your taxes. Tax deductible donations to qualified charities and nonprofits may be recommended. If so, consider donating highly-appreciated stock instead of cash.
This material is provided for general and educational purposes only, and is not legal, tax or investment advice. For each strategy or option mentioned, there are detailed tax rules that must be followed.