Dear Rich Lifer,
We’re entering the busiest time of the holiday season, and I’m sure you have a lot going on.
But the reality is that, with the end of the year rapidly approaching, now is also the time to consider some last-minute moves that can substantially change your finances as well.
So before time runs out, I want to give you three of the best ones …
Tax Loss Harvesting
Although plenty of stocks have made big gains in 2019, others haven’t fared as well.
So if you have some open losses in your portfolio, you might consider selling them before year’s end so you can deduct the losses on Tax Day, 2020.
It works like this:
If you also booked gains this year, you’ll be able to offset them on a dollar-for-dollar basis with no limit.
If you recorded more losses than gains — or no gains at all — you can use your losses to offset some ordinary income. The maximum amount is $3,000 ($1,500 if married filing separately) … but you can carry additional losses forward for future tax years.
Doing this before year-end is a no brainer if you have losing positions that you don’t think will ever come back.
You will not only get a tax break, but you can then take the proceeds from the sale and reinvest them in better long-term choices.
Of course, even if you have underwater positions that you would like to continue holding for the long-term, you STILL might consider selling them at a loss for the tax advantage.
Why? Because as long as you wait more than 30 calendar days before buying back those same positions, the loss will count on your tax form.
The IRS applies what is known as a “wash rule.”
What Qualifies as a Wash?
Basically, they will not recognize a loss if you’ve bought replacement stock within 30 calendar days before or after you sell your losing position.
However, if you wait 31 days, you’re fine and the loss counts.
Aren’t tax laws great?
The real risk is that the stock could rebound over those 30 days and you’d miss out. But I would consider taking the chance, it all depending on the position.
You might also consider another tactic during this season of giving …
If you happened to spot some unused items while you were digging out your holiday decorations, now is a great time to take them to your local charity.
And the same thing is true if there’s a particular cause you’d like to fund.
Reason: As long as you itemize, your charitable donations will also be deductible come April 15th.
Here’s some of the fine print straight from the IRS:
“To be deductible, charitable contributions must be made to qualified organizations. Payments to individuals are never deductible.
“If your contribution entitles you to merchandise, goods, or services, including admission to a charity ball, banquet, theatrical performance, or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received.
“For a contribution of cash, check, or other monetary gift (regardless of amount), you must maintain as a record of the contribution a bank record or a written communication from the qualified organization containing the name of the organization, the date of the contribution, and the amount of the contribution.
“In addition to deducting your cash contributions, you generally can deduct the fair market value of any other property you donate to qualified organizations.”
If you want even more details, go here. But suffice it to say that this is one of those rare tax items that helps you do well by doing good.
Last but not least, one last time…
Look at Your Retirement Accounts
Some accounts — such as IRAs — give you all the way until April 15th, 2020 to sock away money for 2019. But others must be established and/or funded by December 31st.
For example, if you have access to an employer’s 401(k) plan, your contributions have to be in before New Year’s Day.
So if you’ve been slacking, there should still be time for you to get something in there for this calendar year.
Doing so will provide you with more money for the future … the possibility of matched contributions from your employer … PLUS a nice tax break on your 2019 taxes.
Self-employed? Then DEFINITELY consider opening a Solo 401(k).
I’ve written about them before, but I never get tired of saying it: Opening one could allow you to sock away as much as $56,000 just in 2019 … or even $61,000 if you’re over 50!
But again, you have only until December 31st to establish a Solo 401(k) and elect to contribute any money that is to count as your “employee” part of the overall contribution (though the money itself can go in by April 15th).
One Last Thing
This is also the time to consider implementing any changes to existing accounts — for example, converting a traditional IRA to a Roth.
As with all the other moves I described today, personal circumstances will dictate a lot of what makes sense for you personally… and you may be best served by talking to a tax professional to get more information on all the ins and outs.
But my overall point is that — despite the holiday madness — this is also the best time of the year to make important decisions that will affect you well into 2020 and beyond.
To a richer life,