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| By Nilus Mattive |
It’s ironic. The very best time to make serious financial moves is also the very same time that most of us are busy buying presents, attending parties or trying to wrap up important business projects.
Yet, just a few minutes spent reviewing the following tax strategies could hand you big returns next April. So please take a look, and consider any that apply to your situation …
Move No. 1: Think About Tax-Loss Harvesting
This past year was a good one for many stocks. But some sectors like consumer staples, energy and utilities are still showing red for the year. It’s possible you have a few losers in the taxable part of your portfolio.
If so, you might consider selling those positions before year’s end so you can deduct the losses on April 15, 2024.
It works like this …
First, if you also booked gains this year, you’ll be able to offset them on a dollar-for-dollar basis with no limit.
Second, if you recorded more losses than gains — or no gains at all — you can use your losses to offset some ordinary income. The maximum amount is $3,000 ($1,500 if married filing separately) … but you can carry additional losses forward for future tax years.
Doing this before year-end is a no-brainer if you have losing positions that you don’t think will ever come back.
You will not only get a tax break, but you can then take the proceeds from the sale and reinvest the money in better long-term choices.
Of course, even if you have underwater positions that you would like to continue holding for the longer term, you STILL might consider selling them at a loss for the tax advantage.
Why? Because as long as you wait more than 30 calendar days before buying back those same positions, the loss will count on your tax form.
The IRS applies what is known as a “wash rule.”
Basically, they will not recognize a loss if you’ve bought replacement stock within 30 calendar days before or after you sell your losing position.
However, if you wait 31 days, you’re fine and the loss counts. Be careful here, however. The IRS considers “like-investments” when it applies the wash rule — any investment that is too similar to the one you are selling.
Aren’t tax laws great?
The real risk is that the stock could rebound over those 30 days, and you’d miss out. But I would consider taking the chance depending on the position.
Again, just remember that all of this only applies to taxable accounts, not IRAs or other sheltered accounts.
Move No. 2: Make Last-Minute Charitable Donations
If you happened to spot some unused items while you were digging out your holiday decorations, now is a great time to take them to your local charity.
And the same thing is true if there’s a particular cause you’d like to fund.
Reason: As long as you itemize, your charitable donations will also be deductible come Apr. 15.
Here’s some of the fine print straight from the IRS:
“To be deductible, charitable contributions must be made to qualified organizations. Payments to individuals are never deductible.
“If your contribution entitles you to merchandise, goods or services, including admission to a charity ball, banquet, theatrical performance or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received.
“For a contribution of cash, check or other monetary gift (regardless of amount), you must maintain as a record of the contribution a bank record or a written communication from the qualified organization containing the name of the organization, the date of the contribution and the amount of the contribution.
“In addition to deducting your cash contributions, you generally can deduct the fair market value of any other property you donate to qualified organizations.”
If you want even more details, go here. But suffice it to say that this is one of those rare tax items that help you do well by doing good.
Move No. 3: Take a Final Look at Your Retirement Accounts
Some accounts — such as IRAs — give you all the way until April 15, 2024, to sock away money for 2023. But others must be established and/or funded by Dec 31.
For example, if you have access to an employer’s 401(k) plan, your contributions have to be in before New Year’s Day.
So, if you’ve been slacking, there should still be time for you to get something in there for this calendar year.
Doing so will provide you with more money for the future … the possibility of matched contributions from your employer … PLUS a nice tax break on your 2023 taxes.
One last thing: This is also the time to consider implementing any changes to existing accounts — for example, withdrawing money from a qualified retirement plan and having it recorded on your 2023 tax bill.
As with all the other moves I described today, personal circumstances will dictate a lot of what makes sense for you personally … and you may be best served by talking to a tax professional to get more information on all the ins and outs.
But my overall point is that — despite the holiday madness — this is also the best time of the year to make important decisions that will affect you well into 2024 and beyond.
Best wishes,
Nilus
P.S. While there is no bad time to think about your tax planning and investment strategy, the end of the year is a critical period. Investing in long-term assets is the same way — there are cycles that pay off much better when you see them coming. In fact, there’s one happening right now. Click here for how to play this potential $13 trillion cycle.
