BY MATTHEW BURNELL
“It’s that time of the year, and I don’t mean just the holiday season, even more exciting it’s time for year end ﬁnancial and tax planning! The following are some topics that you may want to discuss with your tax accountant or ﬁnancial advisor.
One year end strategy is “tax loss harvesting”. You or your ﬁnancial professional may be selling equities in non-retirement accounts throughout the year. If selling at a price higher than the purchase price, you have a capital gain on the sale which is taxed according to your income bracket and the amount of time the security was held. With the goal of reducing tax on capital gains, you can look to oﬀset some of the gains by selling other securities in your portfolio that have a loss.
This should be done strategically considering the investment philosophy of your portfolio. Note, repurchasing the same or substantially identical security that you sold for a loss within thirty days, or the loss may be considered a “wash sale” and disallowed.
Now may also be a time to review your withholding on your salary heading into the new year. If you keep owing a large tax bill in April and would prefer to pay this over the course of the year instead, and if applicable reduce interest and penalties your withholding percentage may not be aligned with your income tax rate. For example, if your eﬀective Federal Tax Rate is 25% and the withholding on your paystub is 15%, there is a 10% gap here and you will likely owe taxes in April if you have not been making estimated payments. You can adjust your withholding on form W4 provided by your employer.
Maxing out your retirement contributions is a way to reduce taxable income as well as save for retirement. If you are using a pre-tax plan such as a 401K or 403(B). The maximum contributions for 2023 to a 401K is $22,500 plus an extra $7,500 if over the age of ﬁfty. For example, a client is over age 50 and earns $120,000. If they contribute $30,000 to a 401K that reduces taxable income (aside from FICA taxes) to $90,000 for the tax year. So, you have deferred taxes on this $30,000 as well as set aside money for retirement that can grow over time.