It’s the End of the Year, Now What?

November 2022 – By Ryan Boyle, CRPC®

2022 has passed just as quickly as it got here, and now its almost time for the end of the year holiday season.  To help prepare for the end of the year, we have a few suggestions that can help you end your year on a positive note given the way 2022 has unfolded.

Harvest some losses, while avoiding wash sales – Given how far some major indices have fallen, it might make sense to help reduce your overall capital gains tax liability by harvesting some of the losses in your taxable investment accounts.  When it comes to determining your overall capital gains liability, the IRS allows you to net your capital gains against your losses, and you can deduct up to $3,000 in losses per year, or $1,500 if filing married filing separately, with the added benefit of being able to carry forward any losses exceeding your maximum deduction for future years.  If you choose to sell off to realize these losses, but you want to return to your desired allocation, you will need to be mindful of wash sale rules, as a wash sale would temporarily prevent you from taking advantage of a loss.  To prevent a wash sale from occurring, the IRS looks at a timeframe of 61 days, starting 30 days before you sell your investment, the date you sell the investment, and 30 after you sell your investment.  To avoid a wash sale, you would need to sell your investment at least 31 days after buying more of that same investment or something substantially identical, along with waiting at least 31 days after selling the investment to purchase back into the same investment you sold or something substantially identical.  

Prepare for end of year deadlines – While you have up until your tax filing deadline to make any contributions to your retirement accounts, its important to note that any Roth conversions you plan to make are only allowed to count towards the year they are completed.   Another important deadline revolves around 529 contributions, as states that provide deductions would only allow that deduction to count towards the calendar year that the contribution was made in.  For the state of Illinois, this deduction is capped at $1,000 for a contribution of $20,000 for married couples, and $10,000 for single filers so long as the contribution is made by December 31st. 

Making gifts to loved ones and to charities – The IRS allows individuals to gift up to $16,000 per person in a year as of 2022.  If you are married, you can elect to split gifts with your spouse to double this amount to $32,000 per person per year, even though the IRS will want a gift tax form return noting the split gift.  Assuming you and your spouse are also U.S. citizens, you can also gift any amount to each other using the unlimited marital deduction.  For those who are charitably minded, donations to charity can not only be timed well with the holidays, but also can benefit you from a tax perspective, as charitable contributions that are made to a qualifying institution are tax deductible.  The amount that you can deduct varies on both the recipient and type of donation, be it cash, investments, or other goods, but in general the amount that you are able to deduct will be a percentage of your adjusted gross income.

Each of these individual parts can provide some benefit to your overall financial situation if used properly, and at Vantage we are here to help ensure each of these strategies that you wish to implement not only fits right with your plan, but also feels right for you.  Whether you are planning to make gifts for the sake of being generous or looking to lower your overall tax liability by closing a losing position, we will be here to help guide you along your path.   

This material is for informational purposes only.  It is not a recommendation or solicitation to buy or sell any securities.  Vantage Financial is not a tax advisor; please consult your tax advisor prior to making any investment decisions.  Vantage Financial is an Investment Advisory Firm registered with the Securities and Exchange Commission (“SEC”).  SEC registration does not imply any particular level of skill or expertise.