Tax Prep for Your Portfolio

In South Mississippi we don’t often get four full seasons, but one you can most assuredly count on is tax season.  As the seasons begin to change from winter to spring, we know it’s time to begin preparing our taxes in advance of the April 15 filing deadline.  We collectively look for our donation receipts, examine our business expenses, and look for other ways to ensure our tax exposure is limited before officially filing.  With each passing year we ask ourselves if there is anything we could have done differently to better plan for this inevitable process. 

Perhaps you were able to harvest some losses in a volatile 2018 to help offset taxes caused by recent gains or income.  This should always be one of the first things you consider in effective tax planning through your investment portfolio, but that’s more of a year-end tax planning strategy.  So, what other steps can be taken at this point in the process to impact your 2018 tax bill?

Individual Retirement Accounts, or IRAs as they’re more affectionately known, present a great opportunity to make tax deductible contributions for the 2018 tax year and at the same time provide you with a foundation for retirement savings.  Nearly 48% of Americans don’t have any assets in a retirement account at all (Federal Reserve SCF Data), and there’s no better time to start than now.  The deadline to contribute to a Traditional IRA is the April 15 tax filing date, and the contribution limit for 2018 remains $5,500 with a $1,000 catch-up allowed over age 50.   That number increases to $6,000 in tax year 2019 by the way.  If you’re a self-employed individual the benefits could be even greater, where as much as $55,000 could be deferred with a SEP IRA contribution for 2018. 

We’re often asked what piece of advice would we most recommend to investors.  Our response typically involves maximizing opportunities to participate in employer sponsored plans.  According to the US Census Bureau only 32% of the total workforce is saving in a 401K plan, and The Motley Fool recently reported approximately 20% of employees aren’t taking full advantage of an employer’s 401K matching program.  Think about that.  One in five people are turning away one of the greatest benefits offered by employers.  Max out the match if your lifestyle can support it.  By failing to set aside pre-tax income into a retirement account the taxable income for you increases and exposes you to more of your hard-earned dollars ending up in Uncle Sam’s pockets.  As you look to improve your 2019 tax planning make sure you aren’t denying yourself this opportunity to save for retirement! 

Make the most of your portfolio planning to get you through this season in 2019 and beyond.  Let us know how we can help. 

Opinions expressed are those of the author and are not necessarily those of Raymond James.  All opinions are as of this date and are subject to change without notice.  Investing involves risk and investors may incur a profit or loss. 

Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

IRA tax deductibility and contribution eligibility may be restricted if your income exceeds certain limits, please consult with a financial professional for more information. 401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.  Matching contributions from your employer may be subject to a vesting schedule. Please consult with your financial advisor for more information.