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Year End Tax Planning and Finding Balance

Year End Tax Planning and Finding Balance

December 09, 2022
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Year-end Tax Planning

 

We’ve talked with many clients who get anxious around year-end and into tax time, usually because they’ve delayed important tasks like organizing paperwork or contacting their accountant. Sometimes it is because they delay taking advantage of opportunities that could lessen their tax burden.

While you’re on your own to tackle the first two, we can help you with the last point – taking advantage of opportunities that could lessen your tax burden. There are several steps you can take that could potentially reduce next year’s tax obligations.

For example:

If you think your investments will produce capital gains, whether short or long-term, you can offset these with capital losses.

For assets that are held for less than a year, any gains, considered short-term, are taxed at ordinary rates from 10% to 37%. You can offset these with short-term losses.

For assets you hold longer than a year – considered long-term – any gains are taxed at a top rate of 20%, which you can reduce by long-term capital losses.

You can also net your long and short-term capital gains or losses against each other.

If your losses are greater than your gains, good news: You can deduct up to $3,000 in capital losses against your ordinary income on the current year’s tax return and carry forward any unused losses to future years.

Because of this, you might want to avoid short-term gains since these are taxed at higher rates. To do so, if you believe you will have a short-term gain for the year, try to offset it with a short-term loss or consider holding the asset for at least a year when it will become a long-term asset and be taxed at a lower rate.

This requires us to work together to proactively review your portfolio and estimate your gains and losses and is something we will do with you regularly, as appropriate. Most capital gains and losses are triggered when you sell the asset, offering you control over the event. However, capital gain distributions on mutual funds are difficult to predict because they hold a diversified basket of assets and are managed by teams who determine what and when to buy and sell. It is possible to use other losses to offset capital gains you may receive from mutual funds and reduce your capital gains tax.

Keep in mind that it can be beneficial to elect a loss before a gain because you can carry over unused losses to future years, whereas capital gains are taxed in the year that they occur.

Because tax laws change often and are complex, consider speaking with a tax professional to help you manage your tax burden.

  

Finding Balance and Maintaining Perspective in Trying Times

 

As we prepare to wrap up the year, it is helpful to reflect on what has been a tumultuous investing environment. Through all the challenges, newfound opportunities, and highs and lows we’ve experienced during the last several months, it’s no surprise that we might be striving for more balance.

Whether it’s about the markets and global economy or what’s happening in our local communities, the daily onslaught of news can disrupt the balance of our lives. But with resilience, perspective, and the support of close connections, we can navigate through it and regain our sense of equilibrium.

After two years of disruption due to the COVID-19 pandemic, we were searching for some return to normalcy while, at the same time, still experiencing the aftereffects of the pandemic. Some of those included the imbalances created by the fiscal, monetary, and public health policy put in place to address the pandemic, and the process of addressing those imbalances has been disorienting at times.

2022 was about recognizing imbalances built in the economy and starting to address them; we believe 2023 will be about setting ourselves up for what comes next as the economy and markets find their way back to steadier ground, and the adjustment period will likely continue throughout the year.

The Federal Reserve (Fed) spent 2022 aggressively fighting inflation by raising interest rates. In 2023, we expect the Fed to reach the point where it can stop raising rates as inflation starts to come under control. The Fed’s actions to control inflation throughout 2022 pulled interest rates off historically unprecedented and extremely low levels. While that has been painful for bond investors, for the first time in a decade, savers can now find attractive yields in relatively safe vehicles.

2023 will be more focused on how to benefit from this significant shift in interest rate policy. Stock market expectations may also see some realignment heading into 2023. The projections for certain market segments became too high in 2022 following a decade of low rates and a burst of extraordinary technology adoption. We expect 2023 will likely focus more on the opportunities that may emerge following a market sell-off resulting from tighter monetary policy and a likely recession.

Finding Balance is an important component of a successful long-term investment strategy. Our philosophy at Gulfside Wealth is to help you maintain balance by creating personalized financial plans, building resilient, diversified portfolios, and remaining nimble during periods of uncertainty.

While we can never know with certainty how adjustments in the economy and markets may impact us in the coming year, we can take steps to be prepared for anything that happens. The disruptions and uncertainty may not be fully resolved, and there may be more challenges to come, but progress toward finding balance is well underway.

When those disruptions hit the market, it can be hard to find stable footing and stay the course. Those are the times when sound financial advice is most valuable; it helps us find our center, stick to our plan, and stay focused on our goals. That’s why we’re here, to be a source of stability and balance during periods of uncertainty.

Thank you for the continued trust you place in us. We’re here when you need us.

Important Information

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks, including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

All data is provided as of December 6, 2022.

The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Past performance does not guarantee future results.

Asset allocation does not ensure a profit or protect against a loss.

For a list of descriptions of the indexes and economic terms referenced, please visit our website at lplresearch.com/definitions.