Tax Planning from a Financial Planner's Perspective - 9 Strategies to Consider

Posted by Guest Blogger: Kristen Smith on Dec 27, 2016 8:30:00 AM
Guest Blogger: Kristen Smith
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As we approach the end of 2016, you'll likely hear many people talking about year-end tax planning. While implementing tax planning strategies at year-end is certainly advantageous, tax planning can be even more beneficial as a year-round activity. 

As a financial planner, I often advise my clients to regularly review their financial planning activities alongside the current tax strategies available to them, to minimize potential income taxes while staying on course to meet their financial goals.

Although everyone's tax situation is unique, there are 9 common strategies to consider:

  1. Minimize taxable income while saving for retirement.
    If you are an employee, you make contributions to your 401(k) plan with pretax dollars, reducing your current income and possibly your current-year tax burden. You can also reduce your taxes by making tax-deductible contributions to an IRA, if you qualify. If you are self-employed, you can use a Keogh, SEP (Simplified Employee Pension), or SIMPLE (Savings Incentive Match Plan for Employees) plan to shelter income.
  2. Maximize deductions.
    Some deductible items, like medical expenses, must meet a specific threshold before deductions can be taken. If you fall short of the minimum, you may be able to time discretionary expenses so that you exceed the threshold one year, but not the next.
  3. Consider charitable donations.
    Depending on your specific tax situation, charitable donations can provide a good source of income tax deductions. One tax-saving strategy is to donate appreciated property. You can take a deduction for the fair market value, and avoid capital gains tax on the sale.
  4. Review interest expenses.
    If you pay interest that is not tax-deductible (auto loans or credit cards, for example), consider paying off the debt or converting it to debt that allows for deductible interest—such as a home-equity loan, if available.
  5. Review social security benefits.
    If you collect social security, you may benefit from strategies to reduce or defer taxable income. If your non-social-security income exceeds certain levels, it triggers taxation of a higher percentage of your social security benefits.
  6. Consider municipal bonds.
    Tax-exempt municipal bonds are an excellent tax-advantaged investment, especially if you are in a high income tax bracket, or if you have moved into a higher tax bracket after a promotion or career change. Interest earned on municipal bonds is exempt from federal income taxes, and in most states, from state and local taxes for residents of the issuing states (although income on certain bonds may be subject to the Alternative Minimum Tax).
  7. Plan capital gains and/or losses.
    Determining when to recognize capital gains or losses depends on whether you want to postpone tax liability (by postponing recognition of gains) or recognize capital gains or losses during the current year. If the gains will be subject to a higher rate of tax next year (because of a change in tax bracket), or if you cannot use capital losses to offset capital gains, you may recognize capital gains this year.
  8. Review IRA opportunities.
    If you want to maximize the timing and amount of IRA distributions as long as possible for your heirs, understanding IRA rules is critical. If you are retiring or changing jobs, consider rolling over the assets in your company's pension and 401(k) plan to an IRA. If you have a traditional IRA, evaluate whether it would be beneficial to convert it to a Roth IRA. 
  9. Consider estate planning strategies.
    Review and update your estate plan to minimize potential estate and gift taxes.

For a complete, detailed review of year-end strategies, download CRR's 2016 tax planning guide:

2016 Tax Planning Guide

Your financial advisor can work with you and your tax professional to review your current situation, and determine which strategies may be beneficial to you. What tax planning strategies are you employing this year?

As a guest blogger, I'm unable to respond to comments posted below, but if you have any questions please feel free to contact me directly and I will be happy to help!

*Kristen Zavaski is a guest blogger, representing Axial Financial Group in Burlington, MA. She offers securities as a Registered Representative of Commonwealth Financial Network, Member FINRA/SIPC. CRR, LLP (also represented as CRR, CRR CPA), Axial Financial Group, and Commonwealth Financial Network are separate and unrelated entities. Kristen can be reached at 781-273-1400 or

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend that you consult a tax preparer, professional tax advisor, or lawyer.

Topics: Tax, Retirement, Wealth Management