I’m sure you’re pretty busy right now…
But while most people wait for the New Year to make major financial moves, there are several last-minute steps you should consider taking before January 1…
And they could make a huge difference to your bottom line in 2022 and beyond.
So, before time runs out, I want to give you three year-end moves you should consider right now.
No. 1: Think About Tax Loss Harvesting
2021 has been a great year for stocks, cryptos, and plenty of other assets… but not everything has done well.
So, if you have some open losses in your portfolio, consider selling them before year’s end so you can deduct the losses on tax day.
If you also booked gains this year, your losses can offset the gains on a dollar-for-dollar basis with no limit.
And if you recorded more losses than gains – or no gains at all – you can use those losses to offset some ordinary income up to a limit of $3,000 ($1,500 if married and filing separately).
Better yet, you can carry additional losses forward for future tax years.
Doing this before year-end is a no-brainer if you have losing positions you don’t expect to recover.
You’ll not only get a tax break, but you can also take the proceeds from the sale and reinvest them in other investments you like better.
Even if you have underwater positions you’d like to continue holding for the long-term, you might still consider selling them at a loss for the tax advantage.
Why? Because if you wait more than 30 calendar days before buying back those same positions, the loss will count on your tax form.
In this instance, the IRS applies what is known as a “wash sale” rule.
This means they will not recognize a loss if you’ve bought replacement stock within 30 calendar days before or after selling your losing position.
On the other hand, if you wait 31 days, the loss still counts for tax purposes.
The real risk is that the stock could rebound over those 30 days, and you’d miss out… But I’d consider taking the chance depending on the position.
Also, note that the 30-day wash sale rule does not currently apply to crypto since it’s considered property.
That means you can sell a crypto at a loss, lock-in the deduction, and then immediately repurchase the crypto without losing the deduction.
However, that’ll likely change on January 1, 2022, because of the Build Back Better Act. So, if you have the chance to use this tax trick, consult your tax advisor and consider acting before the new year.
No. 2: Consider Charitable Giving
If you have items you no longer want, now is a great time to bring them to your local charity…
It’s also a great time to fund your favorite cause through the gift of cash or an investment like stock or crypto.
Because if you itemize these gifts, your charitable donations will also be deductible come tax day on April 15. (Even if you don’t itemize, you can still deduct up to $300 for cash gifts to qualified organizations. For more details, click here.)
Suffice it to say, this is one of those rare tax items that helps you do well for yourself by doing good for others.
No. 3: Take One Last Look at Your Retirement Accounts
I recently discussed how different types of retirement accounts have different advantages.
And while IRAs can be opened all the way up until April 15, 2022, and still provide advantages for the 2021 tax year, other types of accounts – like 401(k) plans – must be established and/or funded by December 31.
So, if you’ve been procrastinating, this is your last chance to reconsider.
Opening or funding an account now could provide more money for the future… the possibility of matched contributions from your employer… plus a nice tax break on your 2021 taxes.
Meanwhile, if you’re self-employed, I would strongly recommend you look into opening a Solo 401(k). They provide even higher overall contribution limits than the standard 401(k) plan.
This is also the time to consider implementing any changes to existing accounts – for example, converting a traditional IRA to a Roth.
By all means, enjoy the holidays… but don’t do it at the expense of simple steps that could set you up for serious benefits in the New Year.
Best Wishes and Happy New Year,
Analyst, Palm Beach Daily