A number of third and fourth quarter deadlines and rule changes are approaching for individuals, businesses, and retirement plans. Here’s a checklist of a couple of things to plan for as we approach the end of summer.

Sept. 15, 2017 — third quarter estimated tax payment is due. Now is the time for individuals to review whether their tax situation has changed during the year and whether corresponding adjustments should be made to their third quarter estimated tax payments. For example, if the taxpayer:

  • Anticipates having substantial investment income in 2017, he or she may be subject to the net investment income tax (NIIT), a surtax equal to 3.8% of the lower of net investment income or the excess of modified adjusted gross income over a threshold amount (e.g., $250,000 for joint filers or surviving spouses). The NIIT may need to be included when estimated tax payments are calculated. Even if the taxpayer doesn’t owe the NIIT, the taxpayer may need to adjust estimated taxes if he or she sold assets such as stocks, bonds or real estate at a gain.
  • Intends to retire in the fall, or has been downsized, he or she may wind up in a lower tax bracket for the 2017 tax year and so may want to reduce estimated tax payments (or reduce withholding).
  • Makes an IRA-to-Roth-IRA rollover, the resultant income will have to be reflected in estimated tax calculations to avoid a penalty.
  • Calculates that he or she will not be able to itemize deductions for 2017 (e.g., because a mortgage is paid off, or because of a move to a state with no income tax), then higher estimated tax payments may be needed.

Oct. 16, 2017 — last date to recharacterize a 2016 conversion to Roth IRA. A taxpayer who converted a traditional IRA to a Roth IRA in 2016 may regret having done so (e.g., because the value of the Roth IRA’s holdings has dropped sharply). A taxpayer who wants to erase that conversion for tax purposes may do so by recharacterizing it. This involves transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA via a direct (trustee-to-trustee) transfer. The last date for recharacterizing a 2016 conversion is Oct. 16, 2017 (assuming the taxpayer timely filed his or her 2016 return). The taxpayer must file an amended return for 2016 reflecting the recharacterization.

Contact your Somerset advisor at 317-472-2200 or  with any questions.