February 21

Here are 10 things to consider as you weigh potential tax moves between now and the end of the year.

1. Set aside time to plan

Effective planning requires that you have a good understanding of your current tax situation, as well as a reasonable estimate of how your circumstances might change next year. There’s a real opportunity for tax savings if you’ll be paying taxes at a lower rate in one year than in the other. However, the window for most tax-saving moves closes on December 31, so don’t procrastinate.

2. Defer income to next year

Consider opportunities to defer income to 2017, particularly if you think you may be in a lower tax bracket then. For example, you may be able to defer a year-end bonus or delay the collection of business debts, rents, and payments for services. Doing so may enable you to postpone payment of tax on the income until next year.

3. Accelerate deductions

You might also look for opportunities to accelerate deductions into the current tax year. If you itemize deductions, making payments for deductible expenses such as medical expenses, qualifying interest, and state taxes before the end of the year, instead of paying them in early 2017, could make a difference on your 2016 return.

4. Factor in the AMT

If you’re subject to the alternative minimum tax (AMT), traditional year-end maneuvers such as deferring income and accelerating deductions can have a negative effect. Essentially a separate federal income tax system with its own rates and rules, the AMT effectively disallows a number of itemized deductions. For example, if you’re subject to the AMT in 2016, prepaying 2017 state and local taxes probably won’t help your 2016 tax situation, but could hurt your 2017 bottom line. Taking the time to determine whether you may be subject to the AMT before you make any year-end moves could help save you from making a costly mistake.

5. Bump up withholding to cover a tax shortfall

If it looks as though you’re going to owe federal income tax for the year, especially if you think you may be subject to an estimated tax penalty, consider asking your employer (via Form W-4) to increase your withholding for the remainder of the year to cover the shortfall. The biggest advantage in doing so is that withholding is considered as having been paid evenly through the year instead of when the dollars are actually taken from your paycheck. This strategy can also be used to make up for low or missing quarterly estimated tax payments.

6. Maximize retirement savings

Deductible contributions to a traditional IRA and pretax contributions to an employer-sponsored retirement plan such as a 401(k) can reduce your 2016 taxable income. If you haven’t already contributed up to the maximum amount allowed, consider doing so by year-end.

7. Take any required distributions

Once you reach age 70½, you generally must start taking required minimum distributions
(RMDs) from traditional IRAs and employer-sponsored retirement plans (an exception may apply if you’re still working and participating in an employer-sponsored plan). Take any distributions by the date required–the end of the year for most individuals. The penalty for failing to do so is substantial: 50% of any amount that you failed to distribute as required.

8. Weigh year-end investment moves

You shouldn’t let tax considerations drive your investment decisions. However, it’s worth considering the tax implications of any year-end investment moves that you make. For example, if you have realized net capital gains from selling securities at a profit, you might avoid being taxed on some or all of those gains by selling losing positions. Any losses over and above the amount of your gains can be used to offset up to $3,000 of ordinary income ($1,500 if your filing status is married filing separately) or carried forward to reduce your taxes in future years.

9. Beware the net investment income tax

Don’t forget to account for the 3.8% net investment income tax. This additional tax may apply to some or all of your net investment income if your modified AGI exceeds $200,000 ($250,000 if married filing jointly, $125,000 if married filing separately, $200,000 if head of household).

10. Get help if you need it

There’s a lot to think about when it comes to tax planning. That’s why it often makes sense to talk to a tax professional who is able to evaluate your situation and help you determine if any year-end moves make sense for you.

February 21

The second quarter of 2016 marked the fifth quarter in a row of declining U.S. corporate earnings. Low oil prices and a strong dollar were largely to blame for lackluster financial results.*

Publicly traded companies are required to report quarterly financial results to regulators and shareholders. Earnings season is the often-turbulent period when most companies must disclose their successes and failures.

An earnings surprise–whether profits come in above or below the stock market’s expectations–can have an immediate effect on a company’s stock price, so it’s easy to understand why executives may go to great lengths to impress their investors.

Earnings do represent a corporation’s bottom line and are generally a key driver of the stock price over time. Still, an earnings surprise may not be a reliable indicator of a company’s longer-term outlook, partly because earnings figures generally reflect past performance.

Earnings are just one factor to consider when evaluating a company’s outlook. Sales performance, research and development, new products, consumer trends, and global economic conditions can all affect future results.

Performance Watchwords

A quarterly report typically includes unaudited financial statements, a discussion of the business conditions that affected financial results, and some guidance about how the company expects to perform in the following quarters. Financial statements reveal the quarter’s profit or net income, which must be calculated according to generally accepted accounting principles (GAAP). This typically involves subtracting operating expenses (including depreciation, taxes, and other expenses) from net income.

Earnings per share (EPS) represents the portion of total profit that applies to each outstanding share of company stock. EPS is the figure that often makes headlines, because the financial media tend to focus on whether companies meet, beat, or fall short of the consensus estimate of Wall Street analysts. A company can beat the market by losing less money than expected, or can log billions in profits and still disappoint investors who were counting on more.

To help avoid surprises, many companies take steps to manage the market’s expectations. For example, they may issue profit warnings or revise previous forecasts, prompting analysts to adjust their estimates accordingly. Companies may also be able to time certain business moves to help meet earnings targets.

Shaping Perception

In addition to filing regulatory paperwork, many companies announce their results through press releases, conference calls, and/or webinars so they can try to influence how the information is judged by investors, analysts, financial media, and the general public.

Pro-forma (or adjusted) earnings may present an alternative view of financial performance by excluding nonrecurring expenses such as restructuring costs, interest payments, taxes, and other unique events. Although the Securities and Exchange Commission has rules governing pro-forma financial statements, companies still have a great deal of leeway to highlight the positive and minimize the negative in these reports. There may be a vast difference between pro-forma earnings and those calculated according to GAAP.

The media hype surrounding earnings that come in stronger or weaker than expected could distract from other important details that may be included in a company’s quarterly report. Understanding the reporting process may help you ignore short-term market swings and remain focused on your long-term investing strategy.

Note: The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost.

*FactSet, 2016

February 21

U.S. Supreme Court decisions have given same-sex married couples the same rights and privileges as opposite-sex married couples. If you’re married or on your way to the altar, you’ll want to sort through the financial implications and potential opportunities you have.

  1. Evaluate your employee benefits
    Once you’re married, you may want to coordinate workplace benefits with your spouse. Start by contacting your employer’s human resource department in order to evaluate the benefits that are available to you. For example, you may want to enroll your spouse in your health and dental plans, or cancel your own coverage if you opt for coverage under your spouse’s plan. If your employer offers voluntary group life insurance coverage for your spouse, you may now want to consider purchasing it. You may also be able to help cover your spouse’s health insurance expenses through contributions to a flexible spending account or health savings account.Normally you can make benefit changes only during your employer’s annual open enrollment period, but under IRS guidelines there’s an exception for certain qualifying events, including marriage. However, you have a limited window (30 days) to make eligible coverage changes. If you don’t make these changes within this period, you’ll need to wait until the next open enrollment season.Your company’s human resource department can provide guidance about other information you’ll need to update. For example, you may need to report name and address changes, and update contact information and beneficiary designations for your life insurance, retirement plan, and other benefit plans.
  2. Take a look at your income taxes
    Since tax year 2013 (after the Supreme Court’s Windsor decision), all same-sex married couples have been required to choose either “married filing jointly” or “married filing separately” when filing their federal income tax returns. But until the Obergefell decision in June 2015, states that did not recognize the marriages of same-sex couples did not allow them to file their state income tax returns jointly. As of tax year 2015, all married couples must file both their federal and state income tax returns as married (jointly or separately).If you were legally married before the Windsor decision and thus had to file your taxes as single, you might consider amending your tax returns to see if doing so would be advantageous. You generally have three years from the date you filed your federal tax return or two years after the date you paid the tax due (whichever is later) to amend your return. This means you may be able to amend 2012 returns until as late as October 17, 2016, depending on when you filed your 2012 return. If you lived in a state that did not recognize your marriage until Obergefell, you may also be able to amend state income tax returns for prior years if the time period for doing so has not expired–check your state’s laws.If you and your spouse both work, keep in mind that you may need to adjust your income tax withholding to account for circumstances that may affect your overall tax liability. For example, now that you’re married, you may be eligible for new tax deductions or credits, or you may end up in a higher tax bracket based on your combined income. You can make any necessary adjustments by completing updated tax forms, such as a new Form W-4.

    Talk to a tax professional for help with your particular situation. For more information about withholding and other tax issues, visit irs.gov.

  3. Consider your life and disability insurance needs
    Take a new look at your insurance needs to make sure that you have the right types and amounts of coverage. Once you’re married, you may find that you and your spouse are financially dependent on each other. Having adequate life and disability insurance can help ensure that your family’s financial needs will be taken care of if something should happen to you.
  4. Revisit your retirement plans
    Marriage will affect your retirement goals and income needs, so it’s a good idea to have an honest discussion about your finances and expectations for the future. Do you and your spouse share the same retirement vision? Do you have a target retirement date in mind? How much have you saved? You may have been planning separately, but now you may need to make joint decisions about retirement.You may need to re-evaluate your retirement savings options. Are either of you covered by a defined benefit pension plan? If so, make sure you understand any additional benefits and payment options available to married taxpayers. If you’re covered by an employer-sponsored defined contribution plan such as a 401(k) or 403(b) plan, does it make sense to direct more of your money to one plan, based on your retirement goals, investing options, and the availability of an employer match?You may also need to make adjustments if you’re contributing to an IRA, because different rules and limits apply to married couples. For example, if you’ve been contributing to a Roth IRA, you’ll need to determine whether you’re still eligible to make contributions. This will depend on the combined income of you and your spouse. Or if you’re filing a joint tax return, you may now have the opportunity to contribute to a spousal IRA, even if one spouse isn’t working. Similarly, if you’ve been contributing to a traditional IRA, your ability to deduct those contributions may be limited, depending on your combined income and whether either of you is covered by an employer retirement plan.

    You’ll also want to review beneficiary designations for all of your retirement plans to make sure they reflect your marital status. Keep in mind that your spouse will generally be eligible for survivor benefits from a defined benefit plan or defined contribution plan and must consent in writing if you plan to name someone else as beneficiary.

  5. Learn more about Social Security
    Social Security is an important source of income for most individuals. When you’re single, you’re only eligible for certain benefits based on your own Social Security record, but after you marry you may also be eligible for Social Security benefits based on your spouse’s earnings record. These include survivor benefits and spousal retirement and disability benefits.If you’re still deciding when to marry, keep in mind that these eligibility requirements include a length of marriage requirement. For example, you generally need to be legally married for at least nine months for your spouse to qualify for survivor benefits (unless an exception applies) and twelve months for your spouse to qualify for spousal retirement and disability benefits.The Social Security Administration (SSA) has announced that it will treat same-sex married couples the same as opposite-sex married couples when determining eligibility for benefits. This means that all couples (even those who were living in former nonrecognition states) may apply for Social Security spousal and survivor benefits. If you were previously denied benefits, you should contact the SSA as soon as possible for further guidance.

    For more information, visit the Social Security Administration’s website, ssa.gov. If you have questions about how marriage may affect your claim call (800) 772-1213, or contact your local Social Security office.

  6. Rethink your estate plan
    Consider reviewing your estate planning goals, strategies, and documents with an estate planning attorney to determine whether changes are needed.Using the unlimited marital deduction, married couples can leave an unlimited amount of assets to the surviving spouse, if the spouse is a U.S. citizen. This means the surviving spouse may inherit assets without owing federal estate taxes. Spouses may also make gifts or transfer property to each other without paying federal gift or income taxes, and generally pass any unused estate tax exemption to the surviving spouse. If you previously purchased life insurance to cover estate taxes, you should determine if it is still needed.

To protect your spouse and other loved ones, make sure your documents are up-to-date, including your will and durable power of attorney. And to help make sure your wishes are followed in the event of a medical emergency or incapacity, you may want to have health-care directives in place that will allow your spouse to make medical decisions on your behalf.