Year End Tax Strategies

With the year end approaching I wanted to shed light on a few tax strategies that may be helpful to consider.

Harvest tax losses

Instinctively, investors have a tendency to hold onto their losing investments longer than they should in hopes of a recovery.  In many cases, investors even sell their winners and add to their losers.  Warren Buffet explained that mindset well, “Selling your winners and holding your losers is like cutting the flowers and watering the weeds.”

Selling your losing positions is also helpful from a tax standpoint.  Selectively selling positions with losses may help to offset other taxable gains and may reduce your tax bill each year.  This year specifically, with almost every asset class posting a negative return, an opportunity may exist to swap from one investment into another comparable investment and capture a tax-loss in the process. 

Bunch donations / property taxes

One notable change for 2018 tax year is that the “standard deduction” was increased from $12,000 to $24,000 for a married couple filing jointly.  As a result, the likelihood of utilizing itemized deductions decreases.  Without claiming itemized deduction, many families will no longer receive tax deductions for charitable donation, property taxes, mortgage interest and a litany of other expenses. 

One simple strategy that may help maximize your deduction is to “bunch” your property taxes, charitable donations and other possible write-offs into the same calendar year to clear the higher hurdle.  For many, that may mean paying your 2019 property tax before year-end or “doubling down” on charitable donations in a single calendar year.  Consult your tax professional before making any decisions.     

Qualified Charitable Donations from IRAs

IRA holders over age 70.5 are required to take money out of their account each year to satisfy the government’s “Required Minimum Distribution.”  This is required by law, and distributions are taxable as earned income… unless… the distributions are made directly to a charity (certain exclusions apply).  If required distributions are paid directly from the IRA account to a charity then the distributions are non-taxable regardless of the decision to claim the standard deduction or the itemized deductions.  For those charitably minded individuals over age 70.5, this can mean substantial tax savings as opposed to paying taxes on the income before making the charitable donations.  As always, consult your tax professional prior to implementing any tax strategy. 

Should you have questions on these or other tax strategies, feel free to loop us into the conversation with your tax professional. 

We continue to be blessed and honored that you choose to trust us with your investments.  I’m humbled to work with so many amazing friends.  From our families to yours, we wish you all a Merry Christmas!