Six 'ASTUTE' Year-End Tax Savings Strategies

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Six ‘ASTUTE’ Year-End Tax Savings Strategies November 20, 2015 Matt Sommer, CFP®, CFA® Vice President and Director, Retirement Strategy Group Janus Capital Group

As 2015 comes to a close, now is the time for individuals to work closely with their tax and investment professionals to take advantage of year-end tax savings strategies. We have identified the following six ‘astute’ strategies that may allow you to keep more of what you earn while smartly setting aside additional dollars to help meet your long-term financial objectives.

A – Accelerate Deductions and Defer Income. Generally, it makes sense to accelerate deductible expenditures into 2015 to reduce taxable income. For example, you might consider prepaying state and local income taxes that are due in January 2016. Another example is to pay your January mortgage in December. Conversely, you should try to postpone the receipt of taxable income into 2016, to the extent you have control over the timing. Caveat: If you are subject to the Alternative Minimum Tax (AMT) in 2015, your situation is more complex as certain expenditures such as state and local taxes are not deductible. Therefore, there is little incentive to pay next year’s expenses earlier than necessary. What’s more, if there is a chance you will not be subject to the AMT next year, be sure pay these expenses in 2016 when you can benefit from the deduction.

S – Set Up a Qualified Retirement Plan. For business owners and other self-employed professionals, the deadline to establish a qualified retirement plan for 2015 is December 31st. The 2015 contribution, however, does not need to be made until the business’s tax-filing deadline including extensions. Owneronly businesses that consist of only principals and spouses might consider a 401(k) that permits an $18,000 deferral ($24,000 if age 50 or older) plus a 25% profit sharing contribution. The maximum participant allocation for 2015 is 100% of compensation not to exceed $53,000 ($59,000 if age 50 or older). Businesses with full-time employees may add a New Comparability profit sharing or even a Cash Balance plan to an existing 401(k) that might permit substantially larger allocations to the principals. Caveat: A SEP IRA may be established and funded up until the business’s tax-filing deadline including extensions.

T – Transfer Assets to Charity. If you are charitably inclined, December 31st is the deadline to make a charitable donation and qualify for a current year deduction. Generally, appreciated assets rather than cash should be transferred because while the tax deduction is the same, neither the charity nor the donor will pay a capital gain when the security is eventually sold. If you are interested in a current year tax deduction but do not have specific cause or charity in mind, you can transfer assets to a Donor Advised Fund (DAF). This vehicle allows you take the deduction upfront, but recommend the DAF make a grant to a charity of your choosing in the future. DAFs are also a great way to introduce philanthropy to family members including children. Caveat: At the present time, the ability for individuals ages 70 ½ and older to transfer up to $100,000 from an IRA to charity tax-free is not available. Congress may reinstate this planning opportunity later in the year so watch closely if you are interested.

Continued to next page The hypothethical examples are for illustration purposes only and do not represent the returns of any particular investment. Return figures exclude fees and taxes.

Six ‘ASTUTE’ Year-End Tax Savings Strategies (continued) U – Use Your $14,000 Annual Gift Tax Exclusion. You may gift up to $14,000 per year (couples may gift up to $28,000) to as many individuals as you would like without federal gift tax implications. For young children or grandchildren, it might make sense to direct your gift into a 529 College Savings Plan. Investment earnings in these accounts accumulate tax-deferred and qualifying expenses (typically tuition, room and board, books, fees, supplies, etc.) are distributed tax-free. In addition, you can front-load five years’ worth of gifts today and contribute $70,000 ($140,000 for couples) into a 529 plan for each child or grandchild. Note that additional gifts made to the same individuals during the next five years may have gift tax implications. Another savvy gifting strategy is to fund an IRA or Roth IRA for adult children who have earned income but need help getting their retirement savings off the ground. Caveat: If you transfer appreciated securities to a recipient in the 10% or 15% ordinary income tax bracket, they will pay zero capital gains when they sell the security. Donors, however, must be aware of the kiddietax rules that may apply if the child is under age 24, subjecting the appreciation to the parent’s capital gains tax rate.

T – Take Your Required Minimum Distribution. The deadline for satisfying a required minimum distribution from retirement accounts is December 31st. The penalty for failing to satisfy a required minimum distribution can be 50% of the shortfall. If you own multiple IRAs, while each account is subject to a minimum distribution, you might choose to satisfy the aggregate amount from one or several accounts (no such aggregation rule applies to qualified plans). If you are over age 70½ and still working, you must still take a minimum distribution from your IRA, although your employer’s plan may allow you to delay distributions until you retire (as long as you are not more than a 5% owner). Caveat: If you turned 70½ in 2015, you may take your first year’s minimum distribution as late as April 1, 2016, without penalty. If you wait until 2016, however, you will have two taxable distributions in one year potentially resulting in a higher marginal rate. For that reason, it may make sense to take your 2015 distribution before year-end.

E – Exit Losing Stock and Mutual Fund Positions. Any capital losses realized in 2015 can be used to offset realized capital gains. If losses exceed gains, you may offset up to $3,000 of ordinary income. Any additional losses that cannot be used in the current year are carried-over into future years. If you wish to take a loss, you must not purchase a substantially similar security 30 days before or 30 days after the trade date, otherwise the transaction will be considered a ‘wash sale’ and the capital loss will not be allowed (The ability to take the loss is deferred, not lost). Caveat: Assume you would like to use the capital loss on a specific investment but are afraid the security might appreciate significantly within the next 30 days. You are allowed to purchase additional shares of the investment, wait 30 days, and then sell the original lot of shares for a capital loss. Being an astute investor takes forward-thinking and advanced planning. By working with tax and investment professionals at year end, investors may be able to reduce their tax burden and keep more dollars to help them meet their long-term financial objectives.

No investment strategy can ensure a profit or eliminate the risk of loss. A retirement account should be considered a long-term investment. Retirement accounts generally have expenses and account fees, which may impact the value of the account. Non-qualified withdrawals may be subject to taxes and penalties. For more detailed information about taxes, consult a tax attorney or accountant for advice. The information contained herein is for educational purposes only and should not be construed as financial, legal or tax advice. Circumstances may change over time so it may be appropriate to evaluate strategy with the assistance of a professional advisor. Federal and state laws and regulations are complex and subject to change. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of the information provided. Janus does not have information related to and does not review or verify particular financial or tax situations. Janus is not liable for use of, or any position taken in reliance on, such information. Janus is a registered trademark of Janus International Holding LLC. © Janus International Holding LLC. Janus Distributors LLC C-1115-104722 12-30-16

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