Year-End Tax and Investing Moves

As we enter the final month of the year, there are some money moves you can make to maximize your gains and save on taxes. Here are some good strategies to practice towards the end of every year.

Realize those capital gains and losses. If this was a high-income year for you and you’ve decided to get out of some bad investments, now is a good time so that you can harvest those losses from the underperforming investment to offset your income. You can offset losses against any investment gains you have as well as up to $3,000 of your ordinary income (if married filing jointly, or $1,500 if filing single). You can also carry forward losses indefinitely.

As an example, if Edward sold his Tesla stock for a $30,000 gain, and his Carnival stock for a $50,000 loss, then his net loss would be $20,000. If he is married filing jointly, he can offset up to $3,000 of his income this year and carry forward a loss of $17,000 to offset income or investment gains in the future.

It’s a good idea to sell your losing positions if you’re going to get out of them anyway, but watch out for the “wash sale rule” which prevents you from selling a stock at a loss to harvest the losses and then buying the same or similar stock within 30 days. If you do this, the IRS can come after you for the losses you claimed and you will have to claim the income you attempted to offset.

Buy more stock. December can be a choppy time in the markets for the exact reason listed above—everyone is trying to harvest losses so with the amount of selling going on it can drive prices down. In an undervalued market there are lots of stocks for sale so it may be a good buying opportunity for you. We encourage our clients who are still working and in the accumulation phase to dollar-cost-average into the markets by putting aside money every month or every paycheck into their retirement accounts.

As always, it helps to have an expert walk you through the intricacies of the markets and tax laws. At American Financial Planning we are here to help. Feel free to schedule a free consultation with us. Call or email us today!

As a financial advisor Daniel is passionate about helping people achieve their dreams and greatest potential in life. He enjoys strong coffee, thick books, and long bike rides in his hometown of Roanoke, VA.

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