TAX TIPS FOR INVESTORS
As an investor, you may be able to reduce your income-tax liability through year-end tax planning. Here are a few ideas to consider for your next year’s taxes.
Take Advantage of Capital Losses
Do you have capital losses from selling stock shares held in taxable accounts? Maybe you can use the losses to generate a tax benefit. Capital losses can be used to offset capital gains, eliminating tax on the gains. For these purposes, you have to separate long-term gains and losses (on assets held for more than one year) from short-term gains and losses (on assets held one year or less) and net them in a certain order.
Similarly, you may have a carryover loss from a prior tax year that you’ve been “saving up” and hoping to use at some point to offset a capital gain. Well, maybe the time has come. Consider selling carefully selected profitable securities to utilize your carryover loss. Again, how this will play out when the tax law’s netting rules are applied depends on whether the loss is short term or long term and the nature of your current gain.
What if you haven’t sold securities that are showing a paper loss but are thinking of doing so? You can put realized capital losses to work for you by using them to offset any capital gains from this year’s sales. If you have a capital loss with no offsetting gain, you can take up to $3,000 of the loss against your ordinary income. Any loss exceeding this amount can be carried over to subsequent tax years.
Be Careful with Mutual Fund Sales or Purchases
If you’ve been thinking about cashing in appreciated mutual fund holdings that you’ve held for longer than a year, consider completing your transaction prior to the fund’s ex-dividend date (typically in November or December). This will help qualify your entire gain as capital gain, as opposed to having a portion of it potentially identified as a distribution of ordinary income. Conversely, you may want to complete any mutual fund share purchases after the ex-dividend date. You will thus avoid having an immediate tax liability attributable to the dividend payment.
Donate Appreciated Stock to Charity
If you are charitably inclined, donating appreciated securities accomplishes two things: You will create an immediate income-tax deduction equal to the full value of the stock, and you will avoid realization of a capital gain on the sale of your position. Note that deductions for charitable contributions are subject to certain tax law limits.
To learn more about tax rules and regulations for investments, give us a call today. Our knowledgeable and trained staff is here to help.