Five Year-End Issues To Consider
“Respect? Oh come on. If you’ve got an issue, here’s a tissue.” - AUSTIN POWERS IN GOLDMEMBER
Written by Mike Myers & Michael McCullers, Directed by Jay Roach
(3-minute read)
The end of the year is quickly approaching. Before you gather up the courage to battle your fellow shoppers at The Grove or, to a lesser extent, The Americana, take time to think about your personal finances. I’m not talking about your checking account or budgeting for those gifts. I’m referring to certain issues that you must take action on before the calendar flips to 2024. Once it becomes January it may be too late to take advantage of specific items.
TAKE THE LOSS
Tax loss harvesting is a popular strategy to reduce taxes. If you have unrealized (paper) losses in your taxable investment account, consider selling the security (stock) for a loss now. This will offset any gains you have made during the year and/or you can write off up-to $3,000 of your ordinary income.
What if you don’t want to sell it because you think it will rise and turn into a gain? You want to avoid the Wash Sale rule. This states that if you buy the same, or substantially similar, security within 30-days of selling it then the IRS will disallow the loss. However you can buy something that functions similarly. For example if you sell VOO, which invests in the S&P 500, at a loss then you can turn around and buy SPY which also invests in the S&P 500. You could also sell Mastercard and buy Visa for example.
LOAN OUTS
If you have a Loan Out company consider the eligibility rules for Qualified Business Income (QBI) deduction. Look into contributions to a Roth -vs- Traditional IRA and its impact on QBI.
If you have business expenses, it might be more beneficial to defer the costs to January or accelerate the costs to this December in order to reduce your overall tax liability this year.
Many retirement plans, such as a Solo 401(k), must be opened before the end of the year.
PERSONAL BUDGETING
If you’re doing well and are able to save more than you anticipated consider the following:
Add more to your 401(k) or 403(b) unless you’ve maxed it out. If you haven’t hit the maximum salary deferral of $22,500, or $30,000 if you’re 50+, check with your employer to contribute more.
Max out your Traditional or Roth IRA. Assuming you’re under the income limit to be able to contribute to a Roth or make tax-deductible contributions to a Traditional IRA, you still have until April 15th. But if you have the money think about funding it now before you end up spending that extra cash.
TAX BRACKET GAMES
If you’re in a tax bracket where long-term capital gains are tax-free, consider taking as much of those gains before hitting the next bracket where they’re taxed at 15%. If you’re already in the 15% bracket consider doing the same before you hit the 20% bracket. This could include taking more than your Required Minimum Distribution (RMD) or perhaps making a Roth conversion.
GIVE IT AWAY
If you’re charitably inclined but don’t have enough write-offs to itemize your tax deductions, consider bunching your charitable contributions every few years into one larger donation that may allow you to itemize during those specific years.
If you want to gift up-to the annual exclusion amount of $17,000 to a special someone it will be gift tax-free. You can gift this amount to more than one person.
If you’d like more information about Year-End planning you can schedule a Complimentary Meeting HERE.
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