Tax Prep

An Investor’s Year-End Wrap Up & Tax Prep


As we get ready to close out another year, it is essential to make sure that we have reviewed our checklists as investors and get ready for tax season. While it may seem like a long way to tax filing day in April, there are still some things that you want to make sure happen before year-end that could benefit you immediately and in the future. The following are some things to be aware of as you approach year-end and strategies beneficial to your planning.

Did you take your Required Minimum Distributions on retirement accounts?

The penalty from the IRS for not doing this is 50% of the required amount, so make sure this is done! If you are older than 70-1/2 you must take a distribution based on IRS tables from most types of retirement accounts. There are some exceptions if you are still working (401-k’s and 403-b’s only) and in Roth IRAs, but generally you will need to take a distribution whether you need it or not.

NOTE: New since 2015 is the ability to direct those required distributions to a qualified charity from the account. If done correctly, this distribution will not count as income and will not be subject to limitations on deductions. This will have to come directly from the custodian of the account to the charity, so please consult an investment or tax advisor prior to execution. It is also subject to a $100,000 limit per year.

Did you take a distribution from an inherited IRA or Roth IRA?

If you have inherited an IRA or even a Roth IRA from a non-spouse, generally, you need to take distributions over your lifetime or within five-years after the original account holder passed away. The optimal timing is dependent on the age of the deceased, your age, or potentially your need for distributions. You need to see a tax specialist regarding your specific situation. Following the passing of the original account holder, all rollover, SEPs and SIMPLE IRAs will be converted to inherited traditional IRAs and will need to be distributed in some fashion depending on your age. Further, even though your Roth IRA distributions are not taxed, you are required to take a distribution dependent on your circumstances if you have inherited the account.

Speaking of IRAs, do you want to convert any to a Roth IRA before year-end?

Depending on your income for the year, there may be an opportunity to convert IRAs or other retirement plans to Roth IRAs.  Generally, IRA conversions will be income in the year of conversion, but once in the Roth IRA funds are never taxed again. These “tactical” Roth IRA conversions are sometimes done in low income years when tax rates are low. These years include the years following retirement but prior to beginning pensions, social security or annuity payments. If one is a business owner with NOL carry forwards, it could allow the owner to use conversion income to offset NOLs. These can be complicated, so another caveat is to meet with your tax professional prior to pursuing these strategies. Ultimately these moves could help manage the owner’s cash flow in retirement and potentially are a hedge against higher tax rates in the future.

If you do convert to a Roth IRA prior to year-end, you have up until October’s tax extension deadline the following year to push it back or “recharacterize” it, in case you made a mistake and income was higher than you expected or if your investments perform poorly.

Make sure your beneficiaries are up to date on your IRAs.

While you are reviewing all of these things in your IRA accounts, take the time to see that you have your contingent beneficiaries according to your wishes (assuming your spouse as primary). Some may list children outright or other relatives, others may want to have trusts listed in-lieu of younger children outright. Either way, make sure you have listed someone or a trust to ensure that they can maximize the future deferral opportunities via “stretching” the distributions.

Can I harvest some losses in a taxable account?

Some investments you own in a taxable account may be carrying capital losses. You can offset any of those losses against other capital gains that you may have. If you don’t have any other gains, you can offset $3,000 against ordinary income you may have each year. Any additional losses will also carry forward indefinitely to offset ordinary future income.

Currently, international equity funds have had a rough few years which may present some harvesting opportunities. Be careful not to eliminate the loss with a subsequent wash-sale (buying the same investment back within 30 days). If you want to stay invested in a similar investment, consider another fund that is not “substantially identical”.

Make charitable gifts of appreciated stock.

If you have appreciated stock or mutual funds that you have held more than a year and you plan to make significant charitable contributions before year-end, consider donating those to a qualified charity/foundation/ or donor advised fund. You’ll avoid paying capital gains tax on the appreciation, and in many cases be able to deduct the full value from income (subject to phase outs and limitations). Do not ever donate stock with losses, as you should sell those to recognize the loss first and then donate the cash proceeds.

Make sure you are not adding to your AMT calculation.

Charitable gifts are not added back to income as a part of the alternative minimum tax calculation, so they are great deductions to have. As an investor, we need to make sure that our portfolios do not carry municipal bonds subject to AMT, or private activity bonds.  Examine your mutual funds to make sure a percentage of them are not subject to AMT. If they are, and you are triggering AMT, you may want to consider finding alternatives.

Maximize your 401(k) or 403(b) contributions.

Double check that you are on schedule to contribute as much as you can up to the limit of $18,000 ($24,000 if you are older than 50) for 2016. If you haven’t, consider making a Christmas gift to yourself by sending some of your final checks of the year into your 401-k!  This will increase your balance sheet and lower your annual tax bill. Also, make sure you set your elections to maximize next year’s contributions while you are at it and challenge yourself to increase it from last year.

Do your family gifting prior to year-end.

If you are fortunate enough to gift funds to family members, give them an opportunity to be tax smart about the funds prior to year-end. For example, you can individually gift anyone up to $14,000 without having to file a gift tax return or use up some of your gift/estate tax exemption. If the receiver of the gift qualifies to make a Roth IRA contribution for the year by falling within income limitations and having earned income, they can use some of those funds to fund a Roth IRA and shield the growth and distributions from future taxes.

Folks doing gifts could also contribute into a 529 account and receive a state tax deduction if allowable in your state and within the selected 529 program. This would allow the individual making the gift to control the funds for the beneficiary’s use for higher education. If used for qualified higher education, the 529 account’s growth will be tax free for the beneficiary.

Get organized!

While you are at it, prepare your files to receive the investment forms needed for your tax return. These will start to flow into your mail box or email inbox after year-end. A basic list follows:

  • Form W-2:  This lists wages, tax withholdings and retirement plan contributions.
  • Form 1099-MISC:  Reports non-employee compensation for all other compensation.
  • Form 1099-Div/Int:  This will list dividend and interest income for the year in a taxable account.
  • Form 1099-B:  This will be issued with your taxable brokerage account and will list any taxable transaction in the year.
  • Form 1099-R:  This form will show distributions from pensions, annuities, IRAs, insurance contracts, or retirement plans.
  • Form K-1:  This lists partner’s shares of distributed income (K-1S for S-corps)
  • Form 1098:  Form lists mortgage interest paid.
  • Form 1098-E:  Form contains student loan interest paid.
  • Form 1099-T:  This will show a record of qualified tuition paid to post-secondary education (important to match a 529 distribution).
  • Form 5498:  Form lists IRA contribution information for the year.  These will not typically arrive until May, since cutoffs to fund IRAs are in April.

Important Disclosure Information

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Lutz Financial), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Lutz Financial. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Lutz Financial is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of Lutz Financial’s current written disclosure statement discussing our advisory services and fees is available upon request.





Justin Vossen is an Investment Advisor and Principal at Lutz Financial. With 21+ years of relevant experience, he specializes in providing wealth management and financial planning services for high net-worth families, business owners in transition, endowments and foundations. He lives in Omaha, NE, with his wife Nicole, and children Max and Kate.

  • Financial Planning Association, Member
  • BSBA in Economics and Finance, Creighton University, Omaha, NE
  • St. Augustine Indian Mission, Board Member
  • Nebraska Elementary and Secondary School Finance Authority, Board Member
  • St. Patrick's Church, Trustee
  • Mount Michael Booster Club Board
  • Lutz Gives Back, Committee Chair
  • March of Dimes Nebraska, Past Board Member


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