Tax Tips and Planning

wealth management tax tips

By Jeff Supple, CFP | Vice President & Trust Officer

According to the Pew Research Center, approximately one-third of Americans do their own taxes. Whether you prepare your taxes yourself or get help from an accountant, nobody wants to miss a beneficial deduction or tax credit. The following are often overlooked opportunities:

Backdoor ROTH IRA

The details of the backdoor ROTH IRA strategy need to be examined, but it is viable for those with incomes that don’t allow for regular ROTH IRA contributions. The basic premise is that a non-deductible traditional IRA contribution is made and then those dollars are converted into a ROTH IRA. There is no taxable event on the conversion up to the contributed amount. If there are earnings made after the contribution and before the conversion, those earnings (but not the contribution) would be subject to tax if converted.

This strategy was made possible when the income restrictions on converting to a ROTH IRA were removed starting in tax year 2010.

Saver’s Credit

Many people know there are tax advantages to saving money in an IRA or employer-sponsored retirement plan like a 401(k). However, some don’t realize you may qualify for an additional tax credit based on your income level. The code rewards the act of saving for those who have the most difficulty finding extra money to set aside (the lower your adjusted gross income, the higher the tax credit).

The value of a tax credit cannot be understated.  While a deduction simply lowers your taxable income, a credit actually reduces the amount of your tax bill dollar for dollar. The credit specifics can be found on the IRS website.

0% Capital Gains

A long-term capital gain tax is applied to the appreciation of an investment held longer than 12 months.  The federal tax rate on long-term capital gains is 15 percent or 20 percent if you are in the 39.6 percent tax bracket. For people in the 10 percent and 15 percent tax brackets, the capital gains rate is 0 percent.

This may be a smart consideration for those who control their taxable income more easily in a given year (e.g. retirees) and are looking to sell an appreciated investment.

Planning Ahead for 2017

In addition to being aware of opportunities for deductions and tax credits, it’s important to be aware of the changes made to the IRS tax code annually. Below is a brief summary of the updates for 2017 to help you plan for taxes next year:

Standard Deduction

The standard deduction for married couples filing jointly is $12,700 for tax year 2017 (up from $12,600 in 2016). Single tax filers have standard deduction of $6,350 (up from $6,300 in 2016). Note that the personal exemption amount is $4,050 for tax year 2017, which is unchanged from 2016.

Tax Brackets

While the actual tax brackets have not changed, the income thresholds have. For example, the 25 percent tax bracket for a married couple filing jointly starts at $75,901 in tax year 2017 (up from $75,301 in 2016).

During this time of year, it’s always a good idea to be educated on the changes and look to the future as well, so you can easily plan for next year. We strongly suggest that you please consult your tax advisor for more information.

2017 Checklist: Get Your Financial House in Order

By Jeff Supple, Certified Financial Planner®

The beginning of the year is a great time to assess your financial situation and find out if there are things you can or should be doing differently. While a comprehensive list of ways to get your “financial house” in order would be based on your individual situation, below are some universal issues that everyone should consider as the new year begins:

Wills/Trust/Beneficiaries
The beginning of the year is a great time to make sure your estate planning documents are up to date. When reviewing beneficiary designation, don’t forget:

  • Group term life insurance policies at work
  • Old 401 (k) plans
  • Health care power of attorney
  • Financial power of attorney

Account Consolidation
It’s a good idea to occasionally reassess your accounts and find out if consolidating those make sense. Sometimes you can eliminate or reduce costs via consolidation. Regardless, whoever settles your estate will be grateful. The less they have to track down the better

  • Checking/savings accounts
  • IRA/Roth IRA
  • 401(k)

Make sure you haven’t misplaced any money
Check the free government search for missing accounts, insurance settlements, etc. It’s unlikely you’ll uncover much of anything, but you never know.

Update your passwords

  • Compile a non-electronic list of your online user name and passwords.
  • Keep your list in a safe location (e.g. safe deposit box) with instructions on how to access it.

Upgrade your financial security
With the increase in data breaches and cyber-attacks, the probability that some aspect of your financial life will be exposed is ever-increasing. An identity theft protection service might help you sleep at night. Below is a sampling of companies that offer this service. we don’t recommend one over the other:

Life changes. Dust off those documents and make sure they’re still relevant to your current life situation. If you need help with your review, contact State Bank of Cross Plains to speak with one of our Wealth Managment experts.