Year-End Tax Planning

Oct 2015

rick -2            As the days get shorter and the nights get longer, you’re going to begin to see many articles on year-end tax planning.  Most of these articles generally give the same advice to everyone and that is to accelerate deductions into this year, defer income where possible until next year and go through your portfolio and sell positions you have losses in, to take the tax write-off.  For as long as I’ve been involved in the financial world, this is the general advice you get yearly regarding year-end tax planning.  Although sometimes the advice may be beneficial to you, unfortunately, for many people, the advice would be the exact opposite of what they should do.  That is why it is extremely important that before you do any year-end tax planning, you look at your individual circumstances and don’t do what everyone else is doing but rather, do things that make sense for you and your individual situation.


Doing year-end tax planning does require some effort on your part.  After all, you may find that if you accelerate deductions into this year it doesn’t lower your taxes at all.  That is why before you do any year-end tax planning, you need to figure out where you are.  In that regard, the first step along the way is to start with last year’s tax return.  Last year’s tax return should provide you with a guide to help estimate where you stand this year.  Look at the income you had last year and determine if you’ll have the same income this year.  In addition, look at what your deductions were last year and use that as a guide to determine your deductions this year.  Once you have this information you can use it to decide whether it makes sense to accelerate deductions into this year or to pay them next year.  When I talk about accelerating deductions, what I mean is whether you should make that year-end charitable contribution in December as opposed to January.   The same thing could apply to when you should pay your property taxes.  Particularly, for those who don’t itemize their deductions every year, timing when deductions are taken can be invaluable.


One of the worst pieces of advice I see given during tax season is to sell your losers.  The advice I hear many tax people give is that at this time of year you should go through your portfolio and sell investments that you have losses in.  They only recommend this so you can currently deduct those losses on your tax return.  Although there’s nothing wrong with taking the deduction, the problem is you’re letting the tax tail wag the dog.  I’ve always been a believer that you don’t want to do anything for tax reasons and tax reasons alone.  You want to do things that make good economic sense.  Therefore, when someone just randomly goes through their portfolio and sells their losers it could leave their portfolio vulnerable in the fact that it would no longer be balanced and diversified.  I know some people say that they will immediately buy back that investment after they take the loss; unfortunately, it doesn’t work that way.  We have what is known as wash/sales rules so you cannot immediately buy back that same investment and at the same time deduct the losses.


For as long as I’ve been in the financial world, there’s been a fascination with investors to save taxes.  It is almost an obsession with people in the fact that they will do anything to save taxes.  They think that their goal is to save on taxes; it is not.


Never forget your goal is not to lower your taxes; rather, your goal is to increase your net worth.  What many people find is that when they do things for tax reasons and tax reasons alone, yes their taxes go down, but at the same time, they also find that it has not helped their net worth.  Remember, the goal of investing is to increase your net worth and to do this don’t let the tax tail wag the dog.


Good luck!




Rick is a fee-only financial advisor.  His website is  If you would like Rick to respond to your questions, please email Rick at