Tax Payment Calendar - 2017 (Page 2 of 2) in pdf

JULY 2017

TAX PLANNING FOR INVESTMENTS

Under the current rules, the 2017 federal income tax rates on long-term capital gains are the same as last year: 0%,

15%, and 20% for most categories of long-term gain. The maximum 20% rate affects singles with 2017 taxable

income (including long-term gains) above $ 418,400, married joint-filing couples with income above $ 470,700,

heads of households with income above $ 444,550, and married individuals who file separate returns with income

above $ 235,350. Higher-income individuals may also be hit by the 3.8% Net Investment Income Tax (NIIT), which

can result in an effective marginal federal rate of up to 23.8% on long-term gains. Under the Trump tax proposal the

three rates on long-term gains would remain in place, but the 20% maximum rate would kick in at lower income

levels. So, the same strategies for timing capital gains and losses should work regardless of what happens with tax

reform.

As you evaluate investments held in your taxable brokerage firm accounts, consider the tax impact of selling

appreciated securities (currently worth more than you paid for them) before the end of this year. For most

taxpayers, the federal income tax rate on long-term capital gains is still much lower than the rate on short-term

gains. Therefore, it often makes sense to hold appreciated securities for at least a year and a day before selling in

order to qualify for the lower long-term gain tax rate.

Biting the bullet and selling some loser securities (currently worth less than you paid for them) before year-end can

also be a tax-smart idea. The resulting capital losses will offset capital gains from other sales this year, including

high-taxed short-term gains from securities owned for one year or less. Under the current rules, the maximum rate

on short-term gains is 39.6%, and the 3.8% NIIT may apply too—which can result in an effective marginal rate on

short-term gains of up to 43.4% (39.6% + 3.8%). Future tax legislation could lower the maximum rate on short-

term gains, but it will still be significantly higher than the rate on long-term gains. Whatever happens, you won’t

have to worry about paying a high rate on short-term gains that can be sheltered with capital losses because you

will pay 0% on those gains.

If capital losses for this year exceed capital gains, you will have a net capital loss for 2017. You can use that net

capital loss to shelter up to $ 3,000 of this year’s higher-taxed ordinary income from salaries, bonuses, self-

employment, and so forth ($ 1,500 if you’re married and file separately). Any excess net capital loss is carried

forward to next year. Selling enough loser securities to create a bigger net capital loss that exceeds what you can

use this year might also make sense. You can carry forward the excess capital loss to 2018 and beyond and use it

to shelter both higher-taxed short-term gains and long-term gains recognized in those years.

You may want to make gifts to favorite relatives and/or charities in conjunction with an overall revamping of your

holdings of stocks and equity mutual fund shares held in taxable brokerage firm accounts. To get the best tax

results from your generosity, do not give away shares that are currently worth less than you paid for them. Instead,

sell the shares, and take advantage of the resulting tax-saving capital losses. Then, give the cash sales proceeds to

the relative or charity.

On the other hand, do give away shares that are currently worth more than you paid for them. Because the

charitable organization is tax-exempt, it can sell your donated shares without owing anything to the IRS. Most likely,

your relative will pay lower tax rates than you would pay if you sold the shares. In fact, relatives who are in the 10%

or 15% federal income tax brackets will generally pay a 0% federal tax rate on long-term gains from shares that

were held for over a year before being sold. For purposes of meeting the more-than-one-year rule for gifted shares,

count your ownership period plus the recipient relative’s ownership period, however brief. Even if the shares are

held for one year or less before being sold, your relative will probably pay a lower tax rate than you (typically only

10% or 15%). However, gains recognized by a relative under age 24 may be taxed at his or her parent’s higher

rates under the so-called Kiddie Tax rules.

Tax Payment Calendar - 2017 Page 2