Year-End Tax Planning Tips

The end of the year is the perfect time to get your taxes in order. As the pace slows down a bit during the holidays, you can turn your focus toward starting the New Year on the right financial foot.

Bill Ringham, Vice President and Senior Wealth Strategist at RBC Wealth Management-U.S, offers these tips:

Boost your 401(k) contributions. If your employer permits you to make extra contributions to your 401(k), put in as much as you can afford. You typically contribute pretax dollars, so the more you invest, the lower your taxable income. Your earnings also grow on a tax-deferred basis. For 2014, you can contribute up to $17,500, or $23,000 if you are 50 or older. (These same limits apply to 403(b) and 457(b) plans.)

Sell your “losers.” If you own investments that have lost value, you can sell them before 2014 ends and use the tax loss to offset some capital gains you may have earned in other investments. If you have zero capital gains, you can use up to $3,000 of your tax losses to offset other ordinary income. And for a loss greater than $3,000, you can “carry over” the excess and deduct it from your taxes in future years. If you still like the investment sold at a loss, you must wait 31 days before repurchasing it to avoid violating IRS “wash sale” rules.

Delay selling your “winners.” Capital gains can increase your adjusted gross income – and, consequently, your tax bill. So if you are considering selling an asset that has increased in value, such as a stock, you may want to wait until January so the gain will be realized next year.

Be generous. Your cash contributions to qualified charities may be tax deductible. But you might get even bigger tax breaks by donating appreciated assets. Suppose, for example, that you purchased shares of ABC stock for $1,000 and they are now worth $10,000. If you were to give these shares to a qualified charity, and you are in the 28% tax bracket, you may get a $2,800 tax deduction, based on the current market value of the donated shares.

Postpone purchasing mutual fund shares. Many mutual funds pay capital gains distributions in December. So, if you were to buy shares just before the distribution date, you may get a larger distribution, but you will owe capital gains taxes on the money you invested without receiving much benefit from your investment. To avoid this potential problem, ask for the date of the distribution and consider delaying additional investments until afterward.

In addition to these year-end strategies, you may also want to increase your contributions to your traditional or Roth IRA, although you actually have until April 15 to contribute for the 2014 tax year. You can put in up to $5,500, or $6,500 if you are 50 or older. Traditional IRA contributions may reduce your taxable income for 2014, depending upon your income and whether you or your spouse participates in a plan sponsored by your employer. Roth IRAs will not reduce your current taxable income; however, qualifying distributions in the future may be tax-free.


Bill Ringham  works with RBC Wealth Management financial advisors to develop wealth management solutions for clients with a focus on wealth transfer, including trust and estate planning, business succession planning, charitable planning and stock option planning. Ringham works with clients’ attorneys, accountants and other professionals to implement strategies that meet clients’ financial objectives.