Year End Tax Planning Tips

November 21, 2023

I suspect that a main reason people get so anxious around tax time is that they’ve delayed so many important things: Like organizing their paperwork. Contacting their accountant. And taking advantage of opportunities that could lessen their tax burden.


While you’re on your own for tackling the first two, I can help you with the last point – taking advantage of opportunities that could lessen your tax burden. In fact, there are a number of things you can do that could potentially reduce next year’s tax obligations. Let’s take a look.


First, let’s look to losses. If you think your investments will produce capital gains – whether short- or long-term – you can offset these with capital losses.


For assets that you hold less than a year, any gains – considered short-term – these are taxed at ordinary rates from 10% to 37%. You can offset these with short-term losses.


For assets that you hold longer than a year – considered long-term – any gains are taxed at a top rate of 20%, which you can reduce by … you guessed it .. long-term capital losses.


Now, if your losses are greater than your gains, good news: You can deduct up to $3,000 in capital losses against your ordinary income on that year’s tax return and carry forward any unused losses to future years.


Because of this, you might want to avoid short-term gains, since these are taxed at higher rates. To do so, if you believe you will have a short-term gain for the year, try to either offset it with a short-term loss or consider holding the asset for at least a year, when they will become long-term assets and taxed at a lower rate.


This requires that you review your portfolio regularly and estimate your gains and losses. Most capital gains and losses are triggered when you sell the asset, offering you control over the event. However, others — mutual funds, for instance — are difficult to predict as they are made up of a number of assets. If you find assets that have performed poorly, consider using them to offset your gains, as it will reduce your capital gains tax.


Keep in mind that it’s beneficial to elect a loss before a gain, because you can carryover unused losses to future years, whereas capital gains are taxed in the year that they occur.


As tax laws change often and are complex, consider speaking with a tax professional to help you manage your tax burden.