• Steve Coker, CFP

Year End Tax Planning for 2022


The Mid-term election is behind us, and we appear to have a divided government with a Republican majority in the House and democrat majority in the Senate. Divided government is a recipe for gridlock, which is not bad when it comes to tax policy. It means that we are unlikely to have any significant tax legislation before 2024 and we can complete our year-tax planning with a little more certainty than we had last year. Here are a few tax planning ideas for the last few weeks of 2024.


What to do in a down market?


1. Tax Loss harvesting – Markets have been tough in 2022. As we wrote recently, harvesting losses by selling investments at a loss can be an effective tax strategy. Essentially, you can sell loss positions in taxable accounts to recognize the loss for tax purposes, creating a capital loss that may lower your taxes. Unfortunately, you cannot immediately buy the exact same investment, but you can buy a different position that is not substantially similar. See our more detailed discussion here: https://www.cedarstoneadvisors.com/post/tax-loss-harvesting

2. Convert some of your traditional IRA to a Roth IRA – Down markets can be the perfect time to convert some of your traditional IRA to a Roth IRA since the market recovery would be tax free. See our more detailed discussion of Roth conversions here: https://www.cedarstoneadvisors.com/post/roth-conversions


Of course, some strategies are important to consider every year:


1. Maximize your 401k deduction or contribute to a SEP-IRA. This is one of the first and best ways to reduce taxable income. The maximum 401k contribution for 2021 is $19,500 for those under 50 and $26,000 for those 50 and older. Increasing those contributions for the remainder of the year can significantly reduce your taxes due. If you are self-employed then consider starting a SEP-IRA, which generally allow you to contribute up to the lesser of $58,000 or 25% of your self-employment income (check with your tax advisor).


2. Donate appreciated stock: If you are charitably minded, then one of the best ways to reduce taxes is to give. And one of the best ways to give is to donate appreciated stock. If you don’t where to give you can contribute to a Donor Advised Fund, get the tax deduction this year, and then select the final charities in the years to come. See our more detailed discussion of Donor Advised Funds Here: https://www.cedarstoneadvisors.com/post/donating-appreciated-stock


There are many other strategies to help your tax situation, but these investment related tips can help optimize your tax situation.

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