Year-End Tax Tips

Porches and doorsteps are still decorated with pumpkins and mums, but the new year is creeping up once again. Prepare now for the best outlook come tax time.

Required Minimum Distributions

If you’re age 70.5 or older, you are required to begin taking distributions from your IRA, but you aren’t necessarily required to pay taxes on them. That is, of course, if you gift your RMD as a charitable contribution.

If you want to give to the arts, visit with your trust officer! There are many great arts organizations in the communities we serve, and many of our officers sit on their boards. And don’t be shy, feel free to ask why we support them and how donations are used.

Charitable Year-End Giving

Speaking of charitable giving, make your final charitable gifts early, to avoid ambiguity about the tax year in which they belong.


  • Accelerate deductions, defer income. You may be able to pay real estate taxes early and delay a bonus, for example.
  • Bunch deductions. Push deductions into the tax year that you expect to be able to itemize them, if you will take the standard deduction in other years. Some expenses, such as medical costs, have floors on deductibility—10% of AGI for most taxpayers, 7.5% for those age 65 and older. Bunching those expenses into a single year may create a deduction that otherwise would not be large enough to exceed the floor.

Retirement Contributions

Maximize retirement plan contributions. For 2016, up to $18,000 may be deferred to a 401(k) or 403(b) plan. An additional catch-up contribution of $6,000 is permitted for those age 50 and older.

Tax Brackets

Check for Alternative Minimum Tax (AMT) exposure. Upper-income taxpayers have to calculate their income tax liability in two ways. The regular way has a top marginal rate in 2016 of 39.6% and lots of allowable deductions. The AMT has two brackets, 26% and 28%, and it provides for far fewer deductions. Taxpayers pay the higher of the two tax figures.

Family Gifting

The annual exclusion from federal gift taxes in 2016 is $14,000 per donee. The exclusion expires at the end of the year, and it can’t be carried forward if it is unused.

Capital Gains

Tax efficiency matters. Capital gains and losses for the entire tax year are netted against each other, according to these rules:

1. Short-term losses are netted against short-term gains.
2. Long-term losses are netted against long-term gains.
3. If one of these is a gain and the other is a loss, they are netted.
4. Any resulting short-term gains are taxed as ordinary income. Any resulting long-term gains from securities sales are taxed at 15%. At some income levels, the rate is boosted to 20%, and at still higher levels a 3.8% surtax applies, for a maximum capital gains tax rate of 23.8%.
5. Up to $3,000 of net capital losses may be deducted from ordinary income. Short-term losses are used up first, then long-term losses.
6. Unused capital losses may be carried to future years until death.

The conventional wisdom resulting from these rules is that long-term gains are better than short-term, because they have a lower tax rate. Short-term losses are better than long-term losses, because they shelter income at a higher tax rate.

Consult with your advisor to learn more about controlling income tax liabilities before December 31.