Someone working on their taxes
Financial Health
December 30, 2016

Another holiday list: Nine tax-smart moves for 2017

Wells Fargo Private Bank’s top wealth planner offers nine ways to close out 2016 with some money-smart moves to help you prepare financially for 2017.

Tax season may seem like it’s months away, but a top wealth planner said that this is the time of year to consider decisions that could impact how much you pay Uncle Sam.

“A lot of people aren’t thinking about taxes until April, but that can be a mistake,” said Tony McEahern, head of wealth planning for Wells Fargo Private Bank. “If you’re looking to pay less in taxes for this year, then Dec. 31 is the date you need to set in your mind.”

Tony McEahern, head of wealth planning for Wells Fargo Private Bank
Tony McEahern

And that, he said, includes gifts to your favorite charities. If it’s an option for you, consider gifting the charity with an appreciating stock instead of cash, McEahern said.

“This may help you avoid income tax on the built-in gain in the stock, while at the same time taking advantage of your charitable deduction,” he said.

Itemizing your deductions could also help — if your situation warrants and your itemized deductions exceed 2 percent of your adjusted gross income, McEahern said. He listed a number of ways that may help increase your itemized deductions, such as by making charitable deductions, prepaying property taxes, maximizing contributions to flexible spending accounts, and deducting business expenses.

Nine tax-smart moves for 2017

  • Sell investments that have losses. This helps you offset any realized gains. Use net losses to offset up to $3,000 of ordinary income beyond matching gains and losses.
  • Review your option to deduct state and local sales taxes and use sales taxes instead of state and local income taxes. This can reduce tax liability and be very important to consider in states without a state income tax to deduct.
  • Defer income to next year. This can postpone the resulting tax bill for another year.
  • If you plan to sell some of your investments this year, consider selling investments that produce the smallest gain. This reduces the impact of taxable gain in the current tax year.
  • Take advantage of the student loan interest tax deduction. If you have qualified student loans (and meet all necessary requirements), you may be eligible to deduct up to $2,500 to reduce taxable income in the year.
  • Consider holding dividend-paying stocks in your taxable accounts while keeping bonds and CDs in your retirement accounts. Qualified stock dividends continue to be taxed at the long-term capital gains rate, which means dividends will typically be taxed less than the interest received from taxable bonds and CDs.
  • Use any remaining balances in flexible spending accounts. This helps you avoid the loss of the money since FSA balances cannot be carried over year-to-year.
  • Consider taking the required minimum distributions for 2016 from traditional IRA and other affected accounts. If you’re 70 1/2 or older you must make your first withdrawal by April 1, 2017. This helps you avoid major penalties on IRA earnings.
  • Pay federal estimated income taxes before Jan. 15, 2017. Meeting the deadline helps you avoid tax penalties.

While there’s a lot to think about, McEahern said it’s best to take stock today. It may be worth your while before ringing in 2017.

Wells Fargo & Company and its affiliates do not provide tax advice. Please consult your tax advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of you own situation at the time your taxes are prepared.

Wells Fargo Private Bank provides products and services through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries. Wells Fargo Bank, N.A. is a banking affiliate of Wells Fargo & Company.

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