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“Take lemons and make lemonade” with tax-loss harvesting

with S&P 500 index With stocks down nearly 20% since midday Dec. 19 for 2022, it could be a good time for tax loss harvesting, allowing you to offset brokerage account gains with losses, Roberg said.

After deducting the 2022 investment gain, you can use additional losses to reduce ordinary income by $3,000 and carry forward the remaining losses to future tax years.

Karen Van Voorhees, CFP and director of financial planning at Daniel J. Galli & Associates in Norwell, Mass., also recommended the strategy because “we haven’t seen losses like this in over a decade.”

“Harvest losses are an easy way for the stock market to take lemons and make lemonade at the end of a suboptimal year,” he said.

Consider the year-end Roth conversion

Another strategy to consider when the market falls is a Roth Individual Retirement Account conversion, which moves pre-tax funds into a Roth IRA for future tax-free growth. However, you may owe taxes on the amount converted.

Roth conversions in the past market have two advantages. You can buy more shares for the same dollar, and you can pay less tax on the portion transferred.

Of course, you’ll want to know how the conversion affects your 2022 taxes, since higher adjusted gross income could result in higher Medicare premiums, among other tax consequences.

But since the year is almost over, it’s easier to estimate 2022 income and see how the conversion could affect your taxes, says Kevin Burkle, CFP and founder of HCP Wealth Planning in Jacksonville, Florida.

A bunch of multi-year charitable giving with a donor-advised fund

With the higher standard deduction starting in 2018, you’re less likely to itemize deductions like charitable gifts or medical expenses on your tax return, making it harder to claim these tax credits.

That’s because you choose the standard deduction or the higher of the deduction on your return. For 2022, the standard deduction is $12,950 for individuals and $25,900 for married couples filing jointly.

One way to optimize charitable giving is to “bundle” gifts over several years through a so-called donor-advised fund, explained Philip Hertzberg, principal financial advisor and CFP at Team Hewins in Miami. The account functions as a charitable checkbook and offers an advance payment.

The best investments are “highly valued publicly traded stocks,” he said. You’ll avoid the capital gains taxes you’d otherwise owe on selling the debt, which lowers taxes while “maximizing the charitable impact,” he said.



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