With a little over a week left in 2021 and 5 trading days left after today it's time for you to star

• 12/23/21

With a little over a week left in 2021 and 5 trading days left after today it's time for you to start considering year end strategies for maximum possible tax efficiency. For those who are sitting on losses for the year and those sitting on gains there are ways to make your situation work for you. Let me start by saying I'm not a financial advisor, the information contained here is far from all inclusive and although I sourced it thoroughly for accuracy I can not speak to all special circumstances. If you're investing and don't have a tax strategy you will once you get the bill. Rather than waiting to learn this lesson the hard way use these tips to save yourself a significant amount of frustration. First let's discuss long term versus short term capital gains. A capital gain occurs when you sell an asset for more than you paid for it. For tax purposes, it’s useful to understand the difference between realized gains and unrealized gains. A gain is not realized until the appreciated investment is sold. Investments held for longer than one year are taxed under the capital gains tax rate. The basic capital gains rates are 0%, 15%, and 20%, depending on your taxable income. Investments held less than one year are taxable at income tax rates. The tax rates for individuals’ ordinary income are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. So it's pretty easy to see that at every income bracket the capital gains rate is significantly lower than the short term rate taxed as income. 1) Max out your allowed 401k/IRA contributions You can only contribute to a 401(k) for this tax year until December 31st, so make sure to contribute as much of the current $19,500 limit as possible now. Those over 50 can contribute an additional $6500. Contributions to traditional IRAs can be made until April 15th. For those with high-deductible health insurance plans, health savings accounts allow $3600 for individuals and $7200 for families in deductible contributions. Using a 529 plan to save for future education expenses can help you save on state taxes. There's no federal deduction, but states will usually allow you to deduct these contributions. In addition, 529 plans grow tax-free, and the funds can be withdrawn tax-free for qualifying educational expenses. 2) Charitable Giving The 2020 CARES Act provision that allowed $300 in charitable donations to be deducted without itemizing has been extended to 2021. The deduction limit is per person, so couples filing jointly can deduct up to $600 total. If you itemize, you can deduct up to 100% of your adjusted gross income for charitable contributions in 2021. 3) Tax loss harvesting If you have stocks or cryptocurrency that have lost value, you can sell them and deduct up to $3000 in losses. For stocks, you need to be aware of the wash sale rule, which prohibits buying the same stock again within 30 days of selling. This rule does not yet apply to cryptocurrency. This means if you have less than $3k in losses it would be basically insane not to sell your crypto losses until you hit the $3,000 cap. You can then turn right around and rebuy it. This only applies to cryptocurrency. In stocks this is covered by the wash sale rule and disallowed. Again let me say this plainly using a hypothetical example. You tally up your total gains and losses in stocks and cryptocurrency and find you've lost $1,000 this year. You're still holding 4 cryptocurrencies all with $500 in losses (bad year). You can then sell those 4 cryptocurrencies which would bring your losses up to $3,000 for the year. Because no wash sale rule exists for crypto you can then IMMEDIATELY buy it back with zero penalty. You then end up with a $3,000 deduction on your taxable income and still have the crypto you bought back. Although.. if they've lost $500 each you should probably reconsider owning them.. lol. Tax loss harvesting is a widely used strategy to reduce your tax burden by offsetting gains if you have them or actual income if you don't up to $3,000. Again, this isn't all inclusive and I'm not a tax professional. I'll include a link for tax loss harvesting below. Merry Christmas 🌲 🎄! https://www.investopedia.com/terms/t/taxgainlossharvesting.asp ///// #taxlossharvesting #tcardizzle #merrychristmas

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