Your stock portfolio holds more potential than just returns—it can also be a powerful tool for reducing your taxes. By understanding and applying specific tax strategies, you can optimize your gains and minimize your tax liability. In this Insight we will cover seven actionable strategies to help you save.
Offset High-Tax Gains with Long-Term Losses
Selling stocks at a loss can strategically counterbalance short-term gains, which are taxed at rates as high as 40.8%. By offsetting these gains with long-term losses (taxed at up to 23.8%), you effectively reduce your tax burden
Example If you sell a stock for a $10,000 short-term gain but also sell another stock for an $8,000 long-term loss, you'll only pay taxes on the $2,000 of the gain, significantly lowering your tax liability.
Leverage Long-Term Losses for the $3,000 Deduction
Take advantage of the $3,000 annual allowance to offset your ordinary income using long-term capital losses. This deduction is especially valuable for individuals in high tax brackets.
Pro Tip Track all your capital losses carefully to ensure you maximize this benefit.
Avoid the Wash-Sale Loss Rule
When selling a stock at a loss, the wash-sale rule prevents you from claiming the deduction if you repurchase substantially identical stock within 30 days before or after the sale. Avoid this trap by waiting at least 31 days before rebuying the same stock.
Purge Capital Losses with Additional Gains
If you have substantial capital losses or carryovers, consider selling additional stocks, rental properties, or other capital assets to create gains. Unlike losses, there's no wash-sale rule for gains, allowing you to repurchase immediately after selling.
Donate Appreciated Stock to Charity
Donating appreciated stock instead of cash can double your tax benefits:
Deduct the fair market value of the stock as a charitable contribution
Avoid paying taxes on the appreciation
Example If you donate a stock purchased for $1,000 now worth $11,000, you'll get an $11,000 deduction and pay no tax on the $10,000 gain.
Don't Donate Loss Stocks
If you plan to donate stocks, avoid giving stocks at a loss. By selling these stocks first, you can claim the loss as a deduction, providing a greater tax benefit than donating them outright.
These seven strategies offer a clear roadmap for making your stock portfolio work harder for you, not only by generating returns but also by reducing your tax liability. By using these technique, you can ensure you're keeping more of your hard-earns money.
For more guidance on implementing these strategies, reach out to our team today, and let's explore how we can optimize your tax planning for the future!
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