Year End Investment Planning For a Better Tomorrow

Believe it or not, the year is coming to an end. Now is the perfect time to put together your strategy for the end of the year, including what you plan to do with your investments in order to reduce your tax liability. Here are some things to keep in mind as we head into the end of the year:

Make the Most of Your Current Year Financial Losses

It’s true that you shouldn’t sell your investments based on fear. Indeed, running out, and following the crowd, to unload when the market is down is a bad idea. However, this doesn’t mean that you should never sell your losing stocks in a down market. In fact, you can turn losses to your advantage, if you plan matters properly.

You can offset your capital gains with capital losses. Additionally, you can shelter some of your income using losses on investments. And, what you don’t use in terms of your limit, can be carried forward to another year. So, consider your investments, and how your losses might help you save money on your tax bill. Also, be aware of the IRS wash sale rule. You want to make sure that you aren’t buying the same stock again within 30 days, or your offset can’t be used.

Boost your deduction by donating to charity on top of it. You can sell your investments at a loss and shelter some of your income, and then donate the amount you get to charity. You’ll get a deduction, since you will be donating cash. (You can also donate an appreciated stock to charity (without selling); you get a tax deduction for the face value of the stock, and you don’t have to pay taxes on the gains.)

Boost Your Retirement Contributions to Your 401k and IRA

Most people don’t max out their 401k retirement accounts, and that means there is likely room for you to make extra contributions. If you have room to add to a 401k or an IRA, you can do so “ and get a tax deduction. This can be a good way to reduce your income, while padding your retirement account so that you build your nest egg. Just remember: Contributions to a Roth account aren’t tax deductible. So, if you want to reduce your tax liability you will need to focus on contributions to non-Roth retirement accounts.

Open a Health Savings Account (HSA) for Added Tax Benefits

If you have a high deductible health plan and a Health Savings Account to go with it, and if you haven’t maxed out your contributions, you can lower your taxable income with a tax deductible contribution to your HSA. You make contributions to a HSA with pre-tax dollars, so you can see some savings in tax liability. If you want to lower your income a bit, and you have already maxed out your tax advantaged retirement account options, consider doing what it takes to open a HSA. You will improve your overall savings, and pay fewer taxes.

Bottom Line: Plan Well and Plan Ahead

There are ways that you can keep more of your money, putting it to work for you, right now. As the year draws to a close, it’s the perfect time to review your investments, and determine how they can improve your tax situation.