Close Menu

Oxford Financial Group, LTD


Oxford Financial Group, LTD


Expert Perspective

News, research and market insights from our team of experts.


Current Issue | December 20, 2018

Year-End Tax Planning Opportunities

By: Peter Reist, CPA/PFS, AIF®, Managing Director

While it is hard to believe, year end is approaching and it is time to consider tax implications and planning options. At Oxford, we realize that tax efficiency in your investments allows you to keep more of what you earn, which is especially attractive when considering the following:

  • Ordinary federal tax rates on taxable interest and non-qualifying dividends can be as high as 39.6%.
  • There is an additional 3.8% net investment income tax for single taxpayers with an Adjusted Gross Income (AGI) in excess of $200,000 and married filing jointly taxpayers with an AGI in excess of $250,000.

    At Oxford, we review your accounts to focus on the tax-efficient placement of your investments, and we examine taxable accounts for potential year-end tax loss harvesting. To your benefit, capital losses can be utilized to offset realized capital gains and capital gain dividends from your investments. An excess loss of up to $3,000 can also be used to offset other ordinary income, with any excess capital loss being carried forward to future years.

    Though we have not yet seen significant 2015 tax legislation, there remain some year-end planning ideas for your consideration:

    Charitable Gifts

    For charitable gifts, consider utilizing your IRA Required Minimum Distribution (RMD) or gifts of appreciated long-term investments. While Congress has not yet reauthorized the exclusion from income for charitable contributions made directly from your IRA utilizing an RMD, there is no real downside to using those funds for charitable contributions. If Congress reapproves this technique, you will benefit by not having to report as income the amount donated to charity distributed from your IRA, up to $100,000, if you are required to receive a RMD for being over 70 ½. While you do not receive the charitable deduction, you also do not report the income. Thus, your AGI is lower than it would be if you received the RMD, wrote a check to the charity and received a charitable deduction. There are benefits to reducing your adjusted gross income and reducing the negative impact of a higher AGI.

    If you have not yet received your 2015 RMD and need additional federal or state estimated taxes, consider having us withhold from your IRA distributions to reduce or avoid underpayment penalties.

    If you utilize appreciated investments that have been held for more than one year to make charitable donations, you receive a charitable deduction at the fair market value of the property when it is transferred to the charity, the charity receives the donation and you permanently avoid the tax on the appreciation the investment generated. You and the charity reap benefits, and you save tax dollars.

    If you are thinking of making charitable contributions and would like to receive a stable annuity income over a certain term or for life, we can assist you with reviewing the benefits of a Charitable Remainder Annuity Trust (CRAT). Alternatively, if you are willing to receive an annuity payout that varies based on the value of the underlying investments, we can discuss the benefits of a Charitable Remainder Unit Trust (CRUT). These also allow you to avoid current income taxes on appreciated property and can provide estate tax savings.

    Estate Tax Considerations

    The IRS recently announced that the estate exclusion amount has been increased to $5.45 million per person effective January 1, 2016. This increase from the 2015 limit of $5.43 million allows for additional lifetime gifts to reduce your estate tax in 2016.

    Prior to December 31, consider utilizing the $14,000 annual gift exclusion amount per donor per recipient to make a gift to remove those funds, and their future appreciation, from your taxable estate. In 2015, with the federal estate tax being 40% on amounts in excess of $5.43 million per person, or $10.86 million for a married couple, the annual exclusion gifts save $5,600 in federal estate tax on $14,000 and 40% on all future appreciation. If your personal situation warrants, you may also consider making gifts above the $14,000 annual exclusion amount to permanently remove those investments from your estate and save the 40% federal estate tax on all of the future appreciation.

    IRA and Retirement Plans

    Consider increasing your contribution to your employer 401(k) or 403(b) retirement plan over your remaining pay periods in 2015 to allow the funds to be invested on a pre-tax basis. An individual under age 50 can defer $18,000, while an individual who will be age 50 by December 31, 2015 can defer $24,000. This allows you to save on a pre-tax basis and reduces your 2015 taxable income.

    If your income is projected to be lower in 2015 than 2016, consider converting some of your pre-tax IRA or 401(k) to a Roth IRA or 401(k). While you will have to pay income tax on the amount you convert in 2015, all of the future earnings will be income tax free.

    Due to recent case law, be very careful when performing IRA or retirement plan rollovers that are not direct trustee-to-trustee rollovers. If you inadvertently have more than one rollover in a 12 month period, the second rollover will not be a qualifying rollover and the funds will be subject to income tax. This is a reason to have your retirement accounts coordinated and monitored by Oxford and to choose only a trustee-to-trustee rollover.

    Indiana Collegechoice 529 Plan

    If you are an Indiana taxpayer, consider funding an Indiana Collegechoice 529 plan for the 20% Indiana state income tax credit on the amount deposited, up to a $1,000 credit per tax return, per calendar year. You will enjoy tax-free growth of the earnings if the funds are utilized for qualifying tuition, room and board and required fees at any state's college or university for the beneficiary of the plan.

    Also consider this:

    If you are not projected to be subject to alternative minimum tax in 2015, consider prepaying your fourth quarter state estimated tax payment and real estate taxes.

    In addition, you may want to consider business or intra-family loans, which currently can be done at very attractive low interest rates.

    Your Oxford Managing Director would be happy to discuss these and other planning ideas with you. However, as with all tax advice, please consult with your CPA to determine if the items discussed above are appropriate, given your specific income tax situation.