Year End Tax Planning Strategies


The year is drawing to a close and with it comes thoughts of what is just around the corner- tax time. No one wants to pay more taxes than they need to but this is exactly what happens to a great number of investors every year. Why is this case? It is because many investors do not implement strategies that can effectively increase their long-term after tax return. If you do not want to make this mistake then here we look at some year end tax planning strategies that you can put into play right away!


The year is drawing to a close and with it comes thoughts of what is just around the corner- tax time. No one wants to pay more taxes than they need to but this is exactly what happens to a great number of investors every year. Why is this case? It is because many investors do not implement strategies that can effectively increase their long-term after tax return. If you do not want to make this mistake then here we look at some year end tax planning strategies that you can put into play right away!

As the year prepares to come to an end you should take the time to review the investments you have that are taxable. The end of the year is an excellent time to offset your losses. If you have a capital loss that can be booked and then used to offset the tax liabilities from your future then this may signal the right time for you to sell. It is also worth knowing that if the rates for capital gains go up then the losses that you book now will go up in the value.

When December rolls around you should peruse your portfolio of taxable accounts to see if you can realize any capital losses. Booking tax losses and getting rid of the losers at the end of the calendar year is an excellent way of offsetting the tax liability you will experience in the future when you make the decision to sell an investment at a gain. If you are an investor who is in a high federal and state tax bracket then it would be very smart of you to offset your short-term gains if you are able to. This is referred to as tax-loss harvesting.

Another year end tax planning strategy is the wash-sale rule. It is essential that your tax-loss selling conforms to a guideline that the IRS has developed known as the wash-sale rule. This rule disallows a loss deduction if you are able to recover your market position in a security within a short period of time before or after the sale of the investment. According to this rule, a loss deduction is disallowed if you decide to purchase substantially identical securities within 30 days of the sale. The same is the case if you buy a call or put option on these securities. The period of time for the wash-sale is 30 days before to 30 days after the sale which takes place over a period of 61 days.

Carryforwards is something else you should look at. Sit down and do an assessment of your gains and losses. You should take a close look at Schedule D of your tax return. Doing so will enable you to figure out whether you have any carryforwards that could be used to offset sales that can create a gain or any potential capital gains distributions. If you have a loss carryforward then it is wise for you to harvest any of your present losses. These losses can then serve to offset any gains you make in the future in real estate, the stock market or both.

Other year end planning strategies for you to look into include year end capital gains distribution, gifting appreciated assets, share identification and selling appreciated assets. There are plenty of options available to investors if they take the time to learn about what they are.

About EW Content Team PRO INVESTOR

The core team focusing on economics, industries, investing, businesses & personal finance.