The end of the year is busy for virtually every household. With families preparing for Thanksgiving, Christmas, Hanukkah and the New Year, finding time to complete everything before 2018’s new goals and resolutions are underway can be challenging.
However, year-end tax planning has become particularly important for nearly every household during recent years, wherein meaningful asset appreciation has occurred. From real estate to securities, including stocks, bonds and ETFs, effective tax management can play a significant role in maximizing your net worth and overall investment portfolio.
Some simple and achievable tax benefits worth remembering at year end can easily be implemented if you take time to review the portfolio, visit with your accountant, and consult your investment advisor prior to December 31 (Dec. 15 if you want to be kind to those that help you).
For example, in the likely event you have a portfolio with significant appreciation and you want to sell and rebalance the investment portfolio, being attentive to how long you’ve owned an asset can be hugely rewarding. The distinction between long-term capital gain (LTCG) and short-term capital gain (STCG) isn’t only for you to be aware of how long you’ve owned it—it’s a line in the metaphorical sand for your tax return.
For instance, any asset owned less than 12 months is considered a short-term gain, and therefore, if sold, will be taxed at your ordinary income tax rate. This rate can be significantly higher than the rate you would incur when selling an asset you’ve owned longer than one year. In other words, if you sell an investment that has increased in value, but you have owned it for only 11 months, you will pay ordinary income tax rates on the gain. If, for instance, you and your spouse (married filing jointly) had taxable income between $233,350 and 416,700 in 2017, you could be in the 33% ordinary income tax bracket—making the sale of that position taxable at the same rate!
Alternatively, if you had chosen to sell a position you have owned longer than 12 months, and you are in the aforementioned tax bracket, the gain would be taxed at 15%. That’s a 54% tax savings by simply achieving the 12-month threshold.
The lesson here: Take advantage of the potential benefits available to you, and do your best to achieve long-term gains, rather than accidentally subjecting yourself to additional tax.
Also, before year end, if you have any positions that have a loss, you can sell them and offset your gains from other positions—dollar-for-dollar eliminating the tax that would otherwise be due. If somehow you have more losses than gains, remember that you can carry those losses forward on your tax return and offset gains in positions that you sell in future years.
It’s never too late to begin thinking through your tax strategy for the coming year, and seeking the help of an investment expert who knows what opportunities to look for can be of enormous help. At Runyan Capital Advisors, we know that every investor’s assets and tax situation is unique, so we take an individualized, close look at your personal finances to come up with a plan going forward that can work for you.
Jeff Runyan is a financial advisor based in Beverly Hills, providing clients nationwide with wealth management and retirement planning advice and backed by over two decades of industry experience. As Chief Executive Manager of Runyan Capital Advisors, Jeff leads an investment team committed to designing investment portfolios that adhere to the premise, “Discipline Makes the Difference.” Learn more at RunyanCapital.com.
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