The Secret to Tax Planning: Start Early

Daryl Patten in Taxes 8 September, 2016

When it comes to tax planning two words come to mind, preparation and opportunity. We all know that taxes and tax planning are low on people’s to-do lists, however it’s important that investors prepare as early as possible in order to avoid missing opportunities. And there’s no better time than now.

Start by figuring out and understanding your current effective tax rates and if you have any carry forward losses from previous tax years. Events like Brexit, or an election, can cause market volatility. If an opportunity presents itself and you’re aware of where you stand by planning ahead, you give yourself and your investment advisor an advantage. Early planning allows you to execute in a much more efficient manner rather than experiencing the market move and then trying to determine how to react. By then, opportunities may already have passed.

Also, it is equally as important for both those with earned income and retirees to consider their current tax bracket. Often, people fail to realize they’re approaching the next marginal bracket, and with some simple planning, they can avoid entering a higher bracket by reducing their income. Below I’d like to share four ways to plan now and avoid scrambling later.

  1. Accelerating deductions. There are a few ways investors can do this; whether it’s contributing to retirement plans or shifting high income producing assets to other family members. Accelerating deductions into a current tax year can be beneficial.

Shifting assets is also very common in tax preparation. Whether it’s grandparents to children, parents to children, etc., taking a look at investments that pay a very high income stream and the tax ramifications of shifting that to a family member is all part of a gifting strategy that may help to reduce overall federal tax.

  1. Tax loss harvesting. Look at investment income as well as capital gains. The highest rate for those in the top tax bracket is 20 percent, which could potentially include an additional 3.8 percent for some taxpayers. So, between now and year-end, look at some traditional tax loss harvesting strategies to offset gains versus losses and reduce that amount as much as possible.
  1. Charitable gifting account. Planning now for potential gifting using formal charitable gifting accounts is important. It takes time to get these accounts established. The custodians that administer the accounts have cutoff periods towards year-end. Therefore, if you wait until the last minute to establish the account, you may run out of time to execute.

You can establish the account now and make contributions between now and year-end to receive a deduction. The charitable gifting account provides flexibility by allowing you to control the timing of distributions to the charity. You can distribute funds immediately, wait to build up a pool of assets or delay giving the gift until you decide what charities you want to support.

  1. Contributing to retirement. When in doubt, contribute to retirement. If you’re someone who turned 50 recently you may be eligible for a catch up contribution. Maximizing contributions to tax-deferred accounts will help offset tax liability for that calendar year.


Fort Pitt does not provide tax advice. We encourage you to contact your tax professional with any questions.

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