5 Tax Talks to Have With Your Financial Adviser Now

Most people don’t think about taking action to lower their tax bill until March or April, when it’s too late to do much about it. But if you are proactive in the last weeks of December, and do some smart tax planning, you can potentially save a lot of money on your 2015 taxes and stress when tax season comes around.

At my wealth management firm, we are now busy analyzing each client’s portfolio and tax situation to make sure we coordinate with his or her tax adviser to help avoid any unnecessary taxes for 2015.

Here are five tax discussions to have with your adviser now:

1. Capital gain distributions Due to 2015 profit-taking by investment managers, some investments are expected to post higher than average capital gains distributions to their investors this year. If these investments are held in non-retirement accounts, the distributions are taxable in 2015. Now may be an excellent time to focus on year-end tax planning related to your portfolio.

If you are proactive in the last weeks of December, you can potentially save a lot of money on your 2015 taxes — and stress.

2. Harvesting tax losses  If you have capital gains this year, you typically will pay a tax rate of 15 to 23.8 percent for long-term gains (assets owned longer than one year) and your ordinary- income tax rate of up to 39.6 percent for short-term gains (assets owned for less than 12 months). If you have any stocks, bonds or mutual funds with losses that you haven’t taken yet, it may make sense to “harvest” some of these losses — which means selling the investments to realize the losses and then using the losses to offset your 2015 gains, dollar-for-dollar.

3. Roth IRA conversions If you have suffered a lower than normal taxable income year or had an ordinary income loss, you may want to consider a Roth IRA conversion for a certain dollar amount. The advantage of converting your traditional IRA to a Roth IRA: You don’t pay income tax on a Roth IRA when you withdraw money in retirement, though you will pay income tax on the traditional IRA contributions. The advantage of a conversion in a lower-income year is that you may be in a lower tax bracket than otherwise, so the taxes due will be less.

Alternatively, if you have a traditional IRA that declined significantly in value, you may want to consider converting it to a Roth IRA at a discount, depending on how long you plan to hold that asset. That’s because, due to the loss in the IRA’s value, the taxes owed on the transfer will be less than if investment hadn’t taken a plunge.


4.Maximizing retirement plan contributions If you are a solo self-employed business owner, you may be able to set up an inexpensive retirement plan that would let you contribute up to $53,000 if you’re under 50; up to $59,000 if you’re over 50. These contributions would be tax deductible for 2015 if you establish and partly fund the plan by December 31.

5. Taking any Required Minimum Distribution (RMD) from an IRA or retirement plan. If you’re 70 1/2 or older, you must take your RMD before December 31. If you don’t, the IRS will levy a severe penalty —50 percent on the amount you were required to take.