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Year-End Tax Considerations

In the KnowFor high net worth investors, taxes matter—a lot.  With the current top Federal marginal tax rate of 39.6% and a state income tax rate added on top of that (along with other possible taxes as well), families in the prime of their earning years can approach a 50% marginal tax rate.  As we come to the end of 2016, we review the ways in which we can be smart about our tax bill and potentially reduce our liabilities.

While taxes are just one part of a family’s overall financial plan, on the margin we can save real money by utilizing best practices in the following areas of our financial life: tax loss harvesting and charitable giving with appreciated securities.

Tax loss harvesting

Tax loss harvesting represents one of the best ways that make lemonade out of lemons—to realize a loss in an investment strategy that has underperformed.  By selling a position in your taxable investment portfolio that has a loss, you realize the loss in the current tax year.

There are two different types of losses that can be realized: short term and long term.  Short term losses can be used to offset ordinary income generated in the portfolio, while long term losses can be used to offset long term gains.  Short term losses of up to $3,000 can actually be used to offset earned income, when these losses exceed realized gains in your investment portfolio.  The result is that tax loss harvesting has the potential to significantly reduce the tax bill associated with your investment portfolio.

Donating appreciated securities

Americans do a large percentage of their charitable gifting towards the end of the year.  The Network for Good estimates that 29% of all charitable gifts are made in December and that 11% of all charitable giving happens in the last three days of the calendar year.  A Guidestar report indicates that roughly 50% of non-profit organizations receive the majority of their charitable contributions between October and December.

High net worth investors tend to be highly inclined to give to charity, particularly at year-end.  Instead of simply writing a check from the family bank account this year to a favorite non-profit, families should consider donating appreciated securities.  By gifting appreciated securities, it is a double win—non-profits receive the full value of your gift and pay no taxes on gains, while families receive the full value of the tax write off and pay no gains on the appreciated securities that were donated.


November and December are the appropriate months to be reviewing your tax liabilities for the year: a time to assess whether there are proactive steps to be taken that can reduce your April 15th tax bill.  While personal savings, earning potential and investment results will ultimately drive the majority of your financial results and retirement success, tax efficiency can add a meaningful tailwind to your overall balance sheet.  We welcome the opportunity to be a resource to you on these tax issues over the upcoming weeks.

This information is not intended to be a substitute for individualized tax advice. Please consult your legal advisor regarding your specific situation. Brown & Tedstrom and LPL Financial do not provide tax advice or services.


Brown & Tedstrom, Inc.

Written by: Brown & Tedstrom, Inc.

Brown & Tedstrom, Inc., a professional advisory firm serving clients across the United States. We provide strategic financial guidance to help manage the wealth of professionals, executives, business owners and their families to help develop financial strategies that seek to address all the stages of wealth – accumulation, preservation, & transfer.

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