It's the most wonderful time of the year ... for year-end tax planning. And while getting your finances in order may not seem fun and festive, smart tax planning can bring major sparkle to your holiday season.
Here are important tax-planning options to keep in mind as your 2014 tax year comes to a close.
If you have realized gains you want to offset and there's a particular stock or security you want to sell to collect a capital loss, sell that security by the end of the year for a loss deduction. However, you are only allowed to sell and then buy back identical securities and claim tax savings on your loss if you rebuy those securities 31 days after your original sale. If you purchase identical securities before those 31 days are up, your loss is considered a "wash" and you won't be able to claim a deduction. Talk to your financial advisor to time your sale appropriately.
- Avoid the Wash Sale Rule.
- Consider Capital Loss Carryover
Did you know you can use capital losses from previous years to offset current capital gains? And you can use $3,000 in past capital losses to offset your regular income each year? Here's how it works: If last winter you ended the year with $50,000 in capital losses and took in $30,000 in capital gains, you will have $20,000 in losses to carry over once you offset your gains.
In this scenario, you can take that $20,000 and either offset any new capital gains this year, or apply $3,000 to offset your regular income and carry the remaining $17,000 over indefinitely.
Depending on your financial situation, it may make sense to plan on offsetting future income by deliberately taking a capital loss today. However, this is something that should be discussed with your financial advisor.
- Make a Charitable Contribution with Appreciated Stock
Donating shares of appreciated stock is a great option if you are considering making a charitable contribution before the end of the year, as it benefits both you and your charity of choice For example, say you own a particular stock that you purchased many years ago for $1,000 - and today it's worth $10,000. If you sell this stock, you pay taxes on $9,000 of capital gains. However, if you donate this stock directly to charity, you avoid paying capital gains and your chosen charity gets the shares to sell for cash.
There are some rules that apply, so ask your financial advisor if this type of contribution will work for you.
- Take your Required Minimum Distribution You are required to take a minimum distribution out of your IRA in the year you turn 70 ½ years old. Your Required Minimum Distribution (RMD) is based on your life expectancy, and there's a hefty penalty if you don't take it when required - 50% of your RMD. So if you're eligible, make sure you plan accordingly.
Remember: Your withdrawal is considered taxable income. When making your distribution, talk to your financial advisor to ensure you also withhold enough to cover federal and state taxes.
These four tips are just a few of the ways you can begin tax planning this holiday season - but they're only a start.
Discuss options with your financial advisor or contact us to learn more about what's best for your unique situation. As always, it's best to speak with your tax accountant before making any decisions.
Have a profitable holiday season!
About the Author: Eric Passeri is Portfolio Manager at Beirne Wealth Consulting,responsible for the day-to-day operations of accounts, as well as the management of trading and fixed income accounts.
About Beirne Wealth Consulting Services, LLC
Beirne Wealth Consulting Services, LLC (“BWC”) is a growing, privately owned, SEC Registered Investment Advisor with about $2 billion in assets under management and over 25 employees in Connecticut, Pennsylvania and Florida. BWC provides independent, fee-based investment management services and customized financial planning solutions. Our institutional business provides consulting expertise to defined benefit and defined contribution plans, endowments, foundations and non-profit organizations. Our private clients include high net-worth individuals and prominent families, many of whom bring complex wealth management challenges and multigenerational planning needs. For more information, please visit www.beirnewealth.com or give us a call today at 888-231-6372.