“It’s a little late to be super strategic,” but there’s still some “low-hanging fruit” with certain tax strategies, said certified financial planner Edward Jastrem, chief planning officer at Heritage Financial Services in Westwood, Massachusetts.
Here are a few last-minute tax moves to consider for 2023.
While the S&P 500 approached a record high on Dec. 28investors may still have opportunities for tax-loss harvestingwhich uses investment losses to offset profits.
“We have been selling off some bond funds at losses and purchasing either individual bonds with high yields or buying other funds in their place,” said certified financial planner Monica Dwyer, vice president of Harvest Financial Advisors in West Chester, Ohio.
“This doesn’t change the overall asset allocation but improves the tax performance,” Dwyer added.
However, you need to consider the so-called wash sale rulewhich blocks the tax write-off if you repurchase a “substantially identical” asset within a 30-day window before or after the sale.
Another move, so-called tax-gain harvestingis selling profitable brokerage account assets while in the 0% long-term capital gains bracket.
Tax-gain harvesting is “an overlooked strategy,” said CFP Andrew Herzog, an associate wealth advisor at The Watchman Group, in Plano, Texas.
You may qualify for the 0% rate for 2023 with taxable income of $44,625 or less for single filers and $89,250 or less for married couples filing jointly.
These rates apply to your “taxable income,” which is calculated by subtracting the greater of the standard or itemized deductions from your adjusted gross income.
You can also use tax-gain harvesting to sell profitable assets and then immediately repurchase to reset the basis, or original purchase price, to reduce future taxes, Herzog explained.
“But it’s very important to have an accurate estimate of income for the year to thread this needle,” he said.
With the year-end nearing, there’s limited time to make a 2023 charitable donation and claim the deductionaccording to Jastrem.
There’s likely not enough time to open and send money to a donor-advised fund. But you could transfer assets directly to a charity from a bank account or brokerage account, assuming your institution can initiate the transfer and the charity can accept the funds by Dec. 31.
“Time is of the essence,” Jastrem said.
Of course, you can only claim a charitable tax break if you itemize deductions on your 2023 tax return. The vast majority of Americans claim the standard deduction, which is $27,700 for married couples filing jointly and $13,850 for single filers in 2023.
