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A little planning now goes a long way come next April

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For many of you, year-end tax planning is always complicated. As with any complicated tax issue, you should always seek the assistance of a tax adviser.


Have you ever gone through a tax preparation meeting, only to find unwelcome surprises?

Once the clock strikes midnight on Dec. 31, your tax planning opportunities cease. It’s crucial to think about some common tax matters ahead of time.


Did you have to pay more taxes than expected last year? Instead, did you receive a large refund? Neither of these outcomes make sense.

Most importantly, you want to make sure to avoid interest and penalties if you did not withhold or estimate enough income tax.

Typically, salary, pensions and Social Security benefits tend to remain relatively stable for most people. You must either withhold enough tax or file quarterly estimates. This is relatively simple to manage, yet you would be surprised how often mistakes arise.

If you discover you are not withholding enough, employees can contact the human resources department and pensioners contact their administrator, while the Social Security Administration has an easily downloadable Form W-4V.


Did you sell any securities during the year? If so, these sales may have resulted in either gains or losses, which may present issues.

For gains, you may need to estimate federal and/or state income tax during the year.

For federal income tax, the general rule on capital losses is that they can offset capital gains. For losses that exceed capital gains, you may offset ordinary income with an additional $3,000 this year and carry any remaining losses forward indefinitely.

Such losses may make Roth individual retirement account conversions advisable. Beware that these calculations may be complex.

Holders of certain investments, such as mutual funds, may have incurred capital gains distributions paid out toward the end of the year.

Most companies disclose their estimated capital gains distributions around October each year. Taking a few minutes to calculate this may save some anguish.

From a federal income tax standpoint, if you’re in the 15 percent tax bracket, capital gains are taxed at zero percent. Once you creep $1 into the 25 percent bracket, your capital gains are taxed at 15 percent.


Converting money from traditional IRAs/401k’s may make sense.

Most people tend to look only at their current year taxes, rather than planning for the long term.

For some people and families, Roth IRA conversions can make sense, especially during the time period after retirement and before age 70 ½ (when required minimum distributions begin).


For those both charitably inclined and who itemize their income taxes, end-of-year charitable gifts may make sense.

Certain people are better off making larger charitable contributions every other year, providing larger itemized deductions.

In opposite years, make no charitable gifts and take a standard deduction. This may allow greater total income tax deductions.

Tax planning is far more complicated than it used to be. Like most other things, a little planning can go a long way.

Do yourself a favor and contact your tax adviser before the end of the year.

Keep in mind that everyone is in a mad rush to get things done in late December. Think about doing so well ahead of time in case you need to make changes.

Paul Marrella is a wealth manager at Marrella Financial Group LLC in Wyomissing, public speaker and author of “What Now? The Widow’s Guide to Financial Independence.” He focuses on providing wealth management and retirement income solutions to successful families in southeastern Pennsylvania and can be reached at www.marrella.com or 610-655-9700.

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