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Year-End Tax Tips Worth Knowing Even Though No Big Changes in 2016

With a new president with a new agenda poised to assume office, an unusually quiet legislative front regarding taxes and related financial issues in recent years may be on the verge of ending. Donald Trump, after all, ran on a platform of lower income tax rates and abolishing the estate tax, among other things.

If Trump acts, however, it won’t be an issue before next year, meaning the big picture for 2016 income taxes will largely be more of the same. Nonetheless, most years often have unusual, if relatively minor tax implications of some sort, especially from an individual perspective, and 2016 is no exception.

...most years often have unusual, if relatively minor, tax implications of some sort, especially from an individual perspective, and 2016 is no exception.
…most years often have unusual, if relatively minor, tax implications of some sort, especially from an individual perspective, and 2016 is no exception.

With that in mind, here is a brief snapshot of just a handful of a panoply of suggestions from a white paper by Baird Capital regarding year-end tax and financial planning ideas.

To request a copy of this white paper, email Annuity FYI or call 1-866-223-2121.

Here are a few of the white paper tips:

  • The first couple of months of 2016 were unusually volatile for the stock market, and so many taxpayers may have completed more transactions early this year than in past years. Consequently, investors should review net long-term and short-term gains and losses for the year to see if there may be an opportunity to sell a losing stock and offset gains from other sales. Since short-gains – assets held one year or less – are taxed at the ordinary tax rate, it’s important to offset these first. This may require realizing only short-term losses.
  • Taxpayers are often concerned that their tax rate will rise from one year to the next, but in many cases the opposite actually happens. For example, those who retired in 2016 or plan to in 2017 may have a decreased level of income that could trigger a fall to a lower bracket next year, and that bracket could have a lower marginal tax rate. If that’s true, deferring other income into 2017 from 2016 may be appropriate. While it’s difficult for most taxpayers to time the recognition of income, self-employed individuals or those whose income is primarily commission-based may have more flexibility here.
  • Make sure you are cognizant of wash sale rules while divesting investments at a loss. These prevent investors from deducting a capital loss from the sale of an item if they buy a “substantially identical” position during a 61-day period, including the 30 days before the day of the sale and continuing 30 days after the day of sale.
  • To claim a loss for a “worthless stock,” an investor must be able to prove the stock had value at the end of 2015 but did not at the end of 2016. If it’s uncertain whether the stock is truly worthless by the end of the year, owners should sell the stock for whatever value they can in order to claim a capital loss. In general, if the stock is still trading, it is not considered worthless. A bankruptcy filing by the company does not, on its own, indicate a stock is worthless.

These tips and a number of others can save you money. Remember, the Baird Capital white paper is yours for the asking. Just contact Annuity FYI.

— Steve Kaufman

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