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Cutting Last Year's Tax Bill Today – WealthManagement.com

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For better or worse, the income, expenses, gains, and losses your clients experienced during the 2017 tax year are already on the books.

But even though 2017 ended several weeks ago, there are still some moves you and your clients can use to shrink their 2017 income tax bills down as far as possible. Here is a checklist to run through with each of your clients, to make sure they are giving Uncle Sam as little of their money as they legally can. 


There is no better way to reduce your clients’ 2017 tax bill than by making a tax-deductible contribution to an IRA. For 2017 the limits are the lesser of the client’s earnings, or $5,500 ($6,500 if she was 50 or over at any time during 2017). The deadline for the contribution is April 17th, 2018. Don’t forget that the clients may also be able to make a spousal contribution, even if the spouse didn’t have any earnings.

Not all workers are eligible to make a tax-deductible IRA contribution. First, they must be under age 70½. If they were covered by a retirement plan at work, they can only deduct the full contribution if their modified adjusted income is below $99,000 for married couples filing jointly, and $62,000 for singles.

Your clients should certainly contact their tax preparer to see if they can make a tax-deductible IRA contribution. But you and your clients can run a preliminary calculation at tinyurl.com/eligira.

Roth IRA

Contributions to Roth IRAs aren’t tax deductible, but low-income taxpayers may still get a tax break on their deposit due to the Saver’s Credit. The amount of the credit can range from 10 percent to 50 percent of any contribution made to a Roth IRA (or other qualifying retirement plan), depending on the contributor’s income and tax filing status. It’s not too big of a commitment to make the Roth IRA contribution now to get the Saver’s Credit, since Roth IRA contributions can be taken back out at any time for any reason with no taxes or penalties whatsoever.

For more information on income limitations and restrictions, see Form 8880 at IRS.gov, or visit tinyurl.com/svrscred. And, as with IRAs, the contribution deadline for Roth IRAs for the 2017 tax year is April 17th, 2018.


According to Savingforcollege.com, seven states allow residents to get a 2017 state income tax break on contributions made to the resident’s state 529 plan, even if the contribution is made in early 2018.

Those states are Georgia, Iowa, Mississippi, Oklahoma, Oregon, South Carolina, and Wisconsin. Tax credit details and deadlines can be found at Savingforcollege’s 529 state plan comparison chart at tinyurl.com/529sfc.          


Clients who are covered by a qualifying high-deductible health insurance plan and aren’t covered by Medicare can lower their 2017 tax bill by making a tax-deductible contribution to their health savings accounts (HSAs). The deadline for 2017 HSA contributions is April 17th of 2018.

For 2017, the HSA contribution limit is $3,400 for individuals, and $6,750 for families. HSA owners who were 50 years of age or older in 2017 can add an additional $1,000 over those limits.

Many banks and investment firms now offer HSAs with a wide range of investment options. If your firm doesn’t offer an HSA, the clients can look for one with a higher rate of interest at HSArates.com.

Correct cost basis

Clients who sold any securities held in non-tax-sheltered accounts in 2017 should verify that the cost basis the clients use (and the one reported by firms to the IRS) is accurate. Often, clients who have sold mutual fund positions with previously-reinvested interest, gains, and dividends don’t realize (or remember) that the distributions were taxed before they were reinvested, and therefore the position may have a higher cost basis than what was originally invested in the mutual fund. 

Undo conversions

Did your clients convert money from an IRA to a Roth IRA in 2017? If so, once they calculate their 2017 taxes, they may find that the conversion boosted them up in a higher bracket than they would prefer.

Or they might find that doing the conversion in 2018 (with the new lower tax rates) would cost them less in taxes than the conversion made in 2017.            Whatever the reason, your clients have until April 17th, 2018 to undo the 2017 conversion via a “recharacterization” (October 15th of 2018 if the client is willing to refile). Your clients should cherish this opportunity for a “do-over” while they can: the most recent tax legislation removed the ability to recharacterize Roth IRA conversions performed after January 1st of 2018.

RMD deadline

Another upcoming important date is April 1st, the last chance clients who turned 70½ in 2017 generally have to take their first required minimum distribution (RMD) from their IRAs, 401ks, 403bs, 457bs, SEPs, SIMPLEs, and profit-sharing plans.

Yes, this distribution technically will add to their 2018 income tax bill. But, failure to take the RMD out by the deadline could cost the client a penalty equal to 50 percent of the RMD amount—and they still have to take the RMD, and pay taxes on it. Note, they can’t convert the RMD amount to a Roth IRA. But they can still donate some or all of it tax-free directly to a qualified charity, even if the clients don’t itemize.

Your fees

For the 2017 tax year investment management fees paid to you by your clients may still be tax-deductible.

The fees could either be deducted from your clients’ non-retirement accounts or paid to your firm by a check. The fees are added to the rest of your clients’ “miscellaneous itemized deductions” and any amount that exceeds 2 percent of your client’s adjusted gross income may be deductible (as long as they itemize their deductions, rather than taking the standard version). That break may be welcome news to the client, but don’t celebrate too heartily. The most recent changes to the tax code wiped out the break for 2018 and beyond.