StrategizING With Your CPA and Portfolio Manager

Income-tax rates, capital-gains tax rates, the taxation of Social Security and Medicare premiums are all affected by levels of income. Depending on your circumstances, you may benefit from harvesting capital losses or even accelerating capital gains as part of a multiyear tax and investment strategy. 

The ability to influence your taxable income becomes even more meaningful if you live in a state and/or county that assesses additional taxes.

There are policy proposals from time to time that may impact the tax code. Partnering with your professional tax, legal and financial advisors to understand your current situation and how it may be impacted by future changes will enable you to respond if appropriate. 

On first reflection, we may feel that we have little control over the timing of income. However, there are a number of common strategies for shifting income and deductions. Following is a list of common strategies you may wish to review with your tax advisor:

Grouping deductions

• Charitable deductions including the use of donor-advised funds, qualified charitable distributions, or charitable remainder trusts

• Healthcare expenses

• Business expenses for pass-through entities

Deferring income

• Contributing to qualified retirement plans

• Nonqualified retirement savings such as deferred compensation plans

• Harvesting losses

• Installment sales

• 1031 like-kind exchange

Accelerating income

• Withdrawals from retirement accounts

• Partial Roth IRA conversions

• Selling appreciated assets

• Taking bonuses or other compensation where you can control the timing

• Exercising stock options.

Regardless of policy changes, most individuals will benefit from thinking strategically about how their income tax brackets and rates are likely to evolve over the course of their life. Seeing the big picture will help identify opportunities for accelerating income into lower bracket years and grouping deductions into higher bracket years.