Now that winter is here, and tax time is around the corner, below are some things you can do now to help you with savings in the new year and to soften your tax burden for this year.
The first thing to do is what we refer to as winter cleaning.
It’s a great time to get rid of things that are no longer needed. You can donate and receive a tax deduction to reduce your tax burden. If you have items that are in demand, you can also try to sell them online to get some extra cash. Both options are a good way to clear out your house of things that are no longer needed or used.
The second thing to do is to review your retirement plans.
With the start of the new year, you should make sure that you’re getting the most out of your retirement plan. The maximum contribution to a 401K if you are under age 50 is $23,000 per year. If you’re over 50 you can add $7500 for a total of $30,500 for 2024. You can do it all pretax or if your plan offers a Roth option you can incorporate that as part of a pretax strategy.
If you are self-employed, you can contribute up to $69,000 per year in a combination of 401K and profit-sharing or SEP plans. The choice will vary depending on if you have employees working for you. You should talk to a financial advisor to help you determine what is the best plan for your specific circumstances. You need to be careful not to set up a self-employed plan where you may be paying more for employees than you would be for yourself.
The third item is to make sure you paid enough taxes and if not make an additional estimated payment.
You have until January 15th to make an estimated payment for 2023. There is a safe harbor, if you paid 110% of what you owed the previous year (2022) or 100% of what you owe for the current year (2023), or you will be paying penalties. It’s a good idea to talk to your tax advisor and discuss your situation and make any payments before January 15. This can save you some tax penalties and some interest, which is currently around 5%.
Also, look at harvesting any tax losses that you have on your investments.
At the end of the year, we recommend that people with non-retirement accounts look at their portfolios. The purpose is to determine if any holdings lost money and you feel that they will not come back for a while. If that’s the case, you can sell these stocks and realize the loss. However, make sure you do not purchase the stock again for at least 30 days. If you buy the stock before 30 days, it would be considered a wash sale, and you would not be able to take advantage of the loss. You can use up to $3000 per year of losses plus you can offset gains on your portfolio and any other capital gains against your losses that you take. This is good practice to do each December.
I hope you found these four strategies helpful. If you have any questions, please feel free to email me at marcs@equityplanning.com and I will be happy to help you. Until next time, I hope you have a very happy new year and a safe winter.
Equity Planning Inc. 7910 Woodmont Ave., Suite 900, Bethesda, MD 20814
Securities offered through Cetera Advisor Networks LLC, Member FINRA/SIPC. Investment advisory services offered through CWM, LLC, an SEC Registered Investment Advisor. Cetera Advisor Networks LLC is under separate ownership from any other named entity.
This piece is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
