Fran O’Rourke, Senior Vice President, Key Private Bank
For many, tax planning begins and ends during a few days in April. Investment management can be
equally neglected, relegated to an occasional account review here and there. However, to minimize your
tax liability and maximize your earnings, tax planning and investment management should be a year-long
process…that can either be either kick-started or reinvigorated by making some smart, end-of- year
The following are five investment strategies that can help boost your financial wellness—for the 2017 tax
year and beyond.
Even if you have contributed generously to your 401(k) account throughout the year, making a larger
contribution by December 31 can help you reduce your earned income. For example, an individual in the
25 percent tax bracket who maximizes their contributions can realize a $4,500 tax savings.
The maximum 401(k) contribution limit for 2017 is $18,000. For those over the age of 50, there is an
additional catch-up allowance of $6,000. And keep in mind, you won’t pay taxes on any money until you
Life never fails to surprise, and with its many surprises comes change. You should review your portfolio to
ensure your asset allocation aligns with your current risk tolerance and investment goals.
When rebalancing your portfolio, you want to mix asset classes to juggle risk with reward. Also, you want
to rebalance to adjust to market performance. The old adage of buy low, sell high applies. For example, if
a particular investment category performs well, your portfolio will become more heavily weighted toward
that asset. Rebalancing allows you to leverage your gains by shifting money into lesser-valued assets
that align with your asset allocation target and long-term goals.
December is a good time to do a portfolio review because end-of- year investment statements are issued.
However, you should review your portfolio as often as the market dictates. Working with a financial
advisor can be helpful.
If you have stock that hasn’t been performing well, now may be the time to sell it. You can use your
losses to offset the gains of higher performing stocks. This is an effective way to minimize your taxes.
A common tactic is to try to offset short-term gains with short-term losses. Investments held for a year or
less are taxed at a higher rate. Next, offset long-terms gains with short-term losses. And finally, match
long-term gains with long-term losses. The idea is to pay as little tax as possible on your investment
gains. If you do not have any capital gains this year, you can use your losses to offset up to $3,000 of
When selling losing stock, be aware of the “wash sale” rule. If you buy the same stock within a 30 day
window, either before or after the sale, you will be disqualified from receiving the tax benefit.
A giving option that does not involve cash is to gift shares of stock. This is particularly relevant during a
year in which the markets perform well, as was the case in 2017.
If you donate shares of a high-performing stock, you can deduct the stock’s fair market value the day you
give it away. This will help you avoid capital gains taxes on the increase in value over time, which you
would have to pay if you sell the stock then give the cash proceeds to charity.
If you’re going to donate stock, check with the charity and brokerage firm about the procedures and time
frame for giving stock. There are usually special requirements.
The end of the year is a great time to evaluate your overall financial wellness by assessing how you
measure up with your savings goals, including retirement, college and personal savings. However, don’t
overlook your health savings account (HSA). HSAs can be a great way to help pay for and save for your
qualified medical expenses on a tax-advantaged basis.
Contributions to HSAs are made pretax, which reduces your taxable income. In addition, interest
compounds and earnings are free of federal tax, and withdrawals are tax free if they are used for qualified
Some HSAs, like KeyBank HSA, offer an investment component. The benefit to this is that it allows you to
plan for after-retirement healthcare costs by providing access to long-term investment vehicles that can
earn a higher rate of return than a standard HSA.
The allowable contribution level for 2017 is $3,400 for individuals and $6,750 for families. For individuals
over the age of 55, there is an additional $1,000 contribution allowance. Maximizing your HSA
contribution will help shield you from unexpected medical expenses, and if you are healthy, a well-funded
HSA can become an important part of your retirement plan.
For more information about end-of- year tax planning and investment strategy, consult with your financial advisor.
About the author: Fran O’Rourke is senior vice president and market leader for KeyBank in the Capital Region. She may be reached at either 518-257-8733 or [email protected]
The tax benefits of giving to charity
Charitable donations can be deducted from your taxable income as long the charity is a qualifying
organization. This can provide a great way to make a difference and ease your tax burden come tax
season, as up to 50 percent of your annual income can be deducted for contributions to charitable
While cash gifts are the most common form of donations, another giving option is to gift shares of stock.
You can deduct the stock’s fair market value on the day you give it away.
In the event of a large tax event, such as selling a business, you can consider starting a foundation.
When you start a foundation, you receive a tax deduction when the foundation is started. You can also
continue to make charitable gifts over time. It’s a great way to leave a legacy.
Charitable trusts are also popular giving vehicles. Here are two popular trusts and their tax benefits:
Charitable Remainder Annuity Trusts. An individually managed trust that enables you to retain
a fixed income for your lifetime or a fixed term of years and make a future gift to charity. Assets
placed in the trust may qualify for an income tax deduction on the estimated value of the
remainder interest that will go to the charity. Also, appreciated assets are exempt from future
capital gains tax and trust assets are not subject to estate taxes.
Charitable Lead Trust. Similar to a remainder trust, assets are placed into the lead trust and an
annual payout rate is established. However, the annual payout goes to the charity instead of you
and/or other beneficiaries. At the end of your lifetime or a specific number of years, the asset in
the trust would then be returned to you or your heirs. This arrangement could potentially reduce
the estate tax due upon death, especially on highly appreciated assets.
Another option is to make a gift to a donor-advised fund. Locally, The Community Foundation is a good
You make donations and receive an immediate tax benefit.
Your donation is placed into a fund where it can grow tax free.
You can make additional donations at any time of your choosing.
When you are ready, you can recommend grants to a qualified charity.
The best thing you can do when planning to make any gift is to consult with your financial planner. When
structured properly, your charitable donation can not only save you money, but it may also make a
meaningful difference for a vital service organization in your community.