Could you be missing out on tax-savings opportunities?
Many people do not prepare for the impact of taxes on their investment and retirement accounts until they have been negatively affected by them. As we move into tax season, now is a great time to begin thinking about strategic and tactical tax planning for 2021 and beyond. Over the next several weeks we will be posting some valuable tips on how to cut or minimize taxes.
Tax Tip #3 – Using Tax Losses
Also known as Tax-Loss Harvesting: This strategy helps reduce the taxes investors will owe on capital gains or ordinary income by offsetting them with tax losses from current or prior years. An investment that has lost value can be sold (with imbedded loss), and then a reasonably similar investment can be bought to replace it. The loss generated by selling the initial investment can then be used to offset any realized gain, resulting in a reduction of capital gains tax. Up to $3,000 of excess realized losses can be used to offset ordinary income per year and any remaining net capital loss can be carried forward indefinitely for individuals.
It is important to note there are regulations that need to be adhered to when using tax loss harvesting. To ensure you are conforming to such regulations it is highly recommended you consult your advisor before employing these strategies.
Check out our other recent posts to understand how to
CUT YOUR TAX BILL IN 2021!
- #1 Taking advantage of employer sponsored savings plans: Including HSA’s, FSA’s, 401k’s, and others
- #2 Paying attention to available tax credits: Often people are unaware of tax credits available to them and how to best use them
- #3 Using Tax Losses: Known as tax-loss harvesting, this can be an effective way to minimize taxes from one year to the next
- #4 Open a Donor Advised Fund (DAF): A DAF, is a great way to lower your tax base while offering flexible opportunities to donate to charities and nonprofits of your choice
- #5 Tax Efficient Investing: There are definitely was to invest that are advantageous from a tax-perspective depending upon your individual situation. This is affected by total assets (including property), individual tax bracket, international holdings, long and short term objectives just to name a few.
DISCLOSURE: The material above is for informational purposes only and should not be interpreted as legal, tax or financial advice. Always consult your CPA/tax advisor/attorney to discuss your specific situation.
