Year End Tax Planning: Investments

As we approach the end of the year, we encourage you to begin thinking about tax planning for your investments.  Here are a few topics to consider:

Tax Rates for Investment Income:

• Capital gains on property held one year or less are taxed at an individual’s ordinary income tax rate.
• Capital gains on property held for more than one year are taxed at a maximum rate of 20% (0% if an individual is in the 10% or 15% marginal tax bracket; 15% for individuals in the 25%, 28%, 33% and 35% brackets).

Timing of Sales: You may want to time the sale of assets so as to have offsetting capital losses and gains. Capital losses may be fully deducted against capital gains and may also offset up to $3,000 of ordinary income ($1,500 for married filing separately).  In general, when you take losses, you must first match your long-term losses against your long-term gains, and short-term losses against short-term gains.  If there are any remaining losses, you may use them to offset any remaining long-term or short-term gains, or up to $3,000 (or $1,500) of ordinary income.  When and whether to recognize such losses should be analyzed in light of the possible future changes in the capital gains rates applicable to your specific investments.

Dividends: Qualifying dividends received in 2014 are subject to rates similar to the capital gains rates. Therefore, qualifying dividends are taxed at a maximum rate of 20% (23.8% if subject to the net investment tax).  Qualifying dividends include dividends received from domestic and certain foreign corporations.

Social Security: Depending on the recipient’s modified AGI and the amount of Social Security benefits, a percentage — up to 85% — of Social Security benefits may be taxed.  To reduce that percentage, it may be beneficial to defer receipt of other retirement income.  One way to do so is to elect to receive a lump-sum distribution from a retirement plan and to rollover that distribution into an IRA.  Alternatively, it may be beneficial to accelerate income so as to reduce the percentage of your Social Security taxed in 2015 and later years.

Please feel free to contact us at 616.393.0398 if there is anything we can do to help you with your investment planning.