It pays to plan ahead

It pays to plan ahead

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Q: Approaching the end of the year, is there anything I should be thinking about regarding my finances? Just trying to make sure I don’t miss out on any opportunities.

A: As 2013 draws to a close, the last thing anyone wants to think about is taxes. But if you are looking for potential ways to minimize your tax bill, there’s no better time for planning than before year-end.

2013 year-end tax planning

With the higher rates put in place with the passage of the American Taxpayer Relief Act of 2012, being tax-efficient is more important than ever. Consider how the following strategies might help you to lower your taxes.

Put losses to work

Since stock and bond performance tends to differ throughout the year, there is a chance that your target asset allocation has shifted, potentially exposing you to more risk than you originally intended.1 That is why now is a good time to review your portfolio for gains and losses and make adjustments as needed.

The IRS allows you to offset investment gains with losses, or tax-loss harvesting. Short-term gains (gains on assets held less than a year) are taxed at ordinary income tax rates, which range from 10-39.6 percent, and can be offset with short-term losses. Long-term gains (gains on assets held longer than a year) are taxed at a top rate of 20 percent and can be reduced by long-term capital losses.2 To the extent that losses exceed gains, you can deduct up to $3,000 in capital losses against ordinary income on that year’s tax return and carry forward any unused losses.

Here are several actions you may want to consider:

• Avoid short-term capital gains when possible, as these are taxed at higher ordinary rates. Unless you have short-term capital losses to offset them, try holding the assets for at least one year.

• Consider taking capital losses before capital gains, since unused losses may be carried forward for future years, while gains must be taken in the year they are realized.

• Consider sell or hold decisions carefully. Keep in mind, a few down periods don’t mean you should sell simply to realize a loss. Stocks in particular are long-term investments subject to ups and downs. Likewise, a healthy, unrealized gain does not necessarily mean an investment is ripe for selling. Past performance is no indication of future results; it is expectations for future performance that count. Moreover, taxes should only be one consideration in sell or held decisions.

Maximize the power of tax deferral

Year-end is a good time to reevaluate employer-sponsored benefits, such as qualified retirement plans that offer tax deferral and typically allow participants to make contributions on a pre-tax basis, thereby lowering current taxable income. If you have not already done so, you may still have time to “max out” your 2013 contribution of $17,500 — with an additional $5,500 in “catch-up” contributions if you are 50 or older.3

Once you have contributed the maximum to your employer plan, consider doing the same with any IRA accounts you may have. Depending on your situation, you may be able to deduct all or a portion of this year’s contribution ($5,500 with an additional $1,000 in catch-up contributions) from your 2013 tax bill.

Another important year-end consideration for older IRA holders is whether or not they’ve taken their required minimum distribution (RMD). Starting at age 70-and-a-half, the IRS requires account-holders to withdraw specified amounts from their traditional IRAs each year. If you have not taken the required distribution in a given year, the IRS will impose a 50-percent tax on the shortfall. So make sure you take any required distributions by Dec. 31.

Income-shifting through gift-giving

Year-end is also a time to make gifts. The annual gift-tax exclusion is currently $14,000 per individual ($28,000 for spouses combined). This technique works particularly well for individuals or couples who want to give away significant assets in a relatively short timeframe. For instance, assuming you and your same-sex spouse have one child who is married and two grandchildren, you could give $112,000 this year — $14,000 from each of you to each family member — without affecting your lifetime gift-tax or estate-tax exemptions. Over time, these annual gifts could help shift considerable assets out of your taxable estate. These techniques are now available for the first time to LGBT legally married spouses since our marriages are now recognized in the eyes of the IRS.

Another time-sensitive gifting strategy involves making a charitable gift from an IRA. The tax law passed in January granted IRA holders who are at least 70-and-a-half years old an extension (through Dec. 31) for making contributions of up to $100,000 directly from an IRA to a charity of choice without having to treat the withdrawal as taxable income. While the gift is not tax-deductible, if done properly, it does help fulfill your RMD for the year.

If you act fast, there is still time to reduce your tax bill before the books close on 2013. Contact your financial professional and tax advisor for assistance.

As always, I wish all of our readers and your families and friends a very happy and healthy holiday season and New Year!

1. Investing in stocks involves risks, including the loss of principal. Bonds are subject to interest-rate risk if sold prior to maturity. Bonds are subject to availability and change in price. Asset allocation does not assure a profit or protect against a loss.

2. Under certain circumstances, the IRS permits you to offset long-term gains with net short-term capital losses. See IRS Publication 550, Investment Income and Expenses.

3. These are government maximums. Your employer may impose lower limits. Rules vary, so check with your benefits administrator to see if there is still time to increase your deferral rate for 2013.

ALERT: With all of the exciting recent news coming from Washington, D.C., about same-sex marriage recognition for certain federal benefit programs, I’m sure many of you have questions. Please feel free to contact me if I can offer any guidance on how these latest developments may impact you and your partner. And look for upcoming Out Money columns, which will address some of these issues as they continue to develop.

Jeremy Gussick is a financial advisor with LPL Financial, the nation’s largest independent broker-dealer.* Jeremy specializes in the financial-planning needs of the LGBT community and was recently named a 2013 FIVE STAR Wealth Manager by Philadelphia Magazine.** He is active with several LGBT organizations in the Philadelphia region, including the Delaware Valley Legacy Fund, the Greater Philadelphia Professional Network, and the Independence Business Alliance. Out Money appears monthly. If you have a question for Jeremy, you can contact him at This email address is being protected from spambots. You need JavaScript enabled to view it.. LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. This article was prepared by Wealth Management Systems Inc., and is not intended to provide specific investment advice or recommendations for any individual. Please consult me if you have any questions. Because of the possibility of human or mechanical error by Wealth Management Systems Inc., or its sources, neither Wealth Management Systems Inc., nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscribers’ or others’ use of the content.

*As reported by Financial Planning magazine, 1996-2013, based on total revenues. **2012-2013 Five Star Wealth Manager Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Prior to 2012, award was based on client satisfaction. Respondents evaluated criteria such as customer service, expertise, value for fee charge and overall satisfaction. The overall score is based on an average of all respondents and may not be representative of any one client’s experience.


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