Spencer Accounting Group, LLC - Tax Planning and Preparation Services - West Allis, Milwaukee, Brookfield, Waukesha, United States and Saudi Arabia
  • Home
  • Pricing
    • Rush & Cancellation Policy
  • Let's Chat
  • Home
  • Pricing
    • Rush & Cancellation Policy
  • Let's Chat

FREE Tax Tips and Updates

Browse our blog for helpful tax planning and preparation information.

2020 Last-Minute Year-End Tax Strategies for Your Stock Portfolio

11/6/2020

0 Comments

 
Picture
​When you take advantage of the tax code’s offset game, your stock market portfolio can represent a little gold mine of opportunities to reduce your 2020 income taxes. 
 
The tax code contains the basic rules for this game, and once you know the rules, you can apply the correct strategies. 
 
Here’s the basic strategy: 
  • Avoid the high taxes (up to 40.8 percent) on short-term capital gains and ordinary income.
  • Lower the taxes to zero—or if you can’t do that, then lower them to 23.8 percent or less by making the profits subject to long-term capital gains.
 
Think of this: you are paying taxes at a 71.4 percent higher rate when you pay at 40.8 percent rather than the tax-favored 23.8 percent. 
 
To avoid the higher rates, here are seven possible tax-planning strategies.
 
Strategy 1
 
Examine your portfolio for stocks that you want to unload, and make sales where you offset short-term gains subject to a high tax rate such as 40.8 percent with long-term losses (up to 23.8 percent). 
 
In other words, make the high taxes disappear by offsetting them with low-taxed losses, and pocket the difference.
 
Strategy 2
 
Use long-term losses to create the $3,000 deduction allowed against ordinary income. 
 
Again, you are trying to use the 23.8 percent loss to kill a 40.8 percent rate of tax (or a 0 percent loss to kill a 12 percent tax, if you are in the 12 percent or lower tax bracket).
 
Strategy 3
 
As an individual investor, avoid the wash-sale loss rule. 
 
Under the wash-sale loss rule, if you sell a stock or other security and purchase substantially identical stock or securities within 30 days before or after the date of sale, you don’t recognize your loss on that sale. Instead, the code makes you add the loss amount to the basis of your new stock.
 
If you want to use the loss in 2020, then you’ll have to sell the stock and sit on your hands for more than 30 days before repurchasing that stock.
 
Strategy 4
 
If you have lots of capital losses or capital loss carryovers and the $3,000 allowance is looking extra tiny, sell additional stocks, rental properties, and other assets to create offsetting capital gains.
 
If you sell stocks to purge the capital losses, you can immediately repurchase the stock after you sell it—there’s no wash-sale “gain” rule.
 
Strategy 5
 
Do you give money to your parents to assist them with their retirement or living expenses? How about children (specifically, children not subject to the kiddie tax)?
 
If so, consider giving appreciated stock to your parents and your non-kiddie-tax children. Why? If the parents or children are in lower tax brackets than you are, you get a bigger bang for your buck by 
 
  • gifting them stock, 
  • having them sell the stock, and then
  • having them pay taxes on the stock sale at their lower tax rates.
 
Strategy 6
 
If you are going to make a donation to a charity, consider appreciated stock rather than cash, because a donation of appreciated stock gives you more tax benefit.
 
It works like this: 
 
  • Benefit 1. You deduct the fair market value of the stock as a charitable donation.
  • Benefit 2. You don’t pay any of the taxes you would have had to pay if you sold the stock.
 
Example. You bought a publicly traded stock for $1,000, and it’s now worth $11,000. You give it to a 501(c)(3) charity, and the following happens:
 
  • You get a tax deduction for $11,000. 
  • You pay no taxes on the $10,000 profit.
 
Two rules to know:
 
  1. Your deductions for donating appreciated stocks to 501(c)(3) organizations may not exceed 30 percent of your adjusted gross income.
  2. If your publicly traded stock donation exceeds the 30 percent, no problem. Tax law allows you to carry forward the excess until used, for up to five years.
 
Strategy 7
 
If you could sell a publicly traded stock at a loss, do not give that loss-deduction stock to a 501(c)(3) charity. Why? If you sell the stock, you have a tax loss that you can deduct. If you give the stock to a charity, you get no deduction for the loss—in other words, you miss out on that tax-reducing loss.
The stock strategies have a long history in tax planning. If you need our help with any of these strategies, please contact us.
0 Comments



Leave a Reply.

    We're Here to Help

    Get advice from our experienced network of financial managers. 
    ​

    If you Value our Blog, We have an ask.

    We spend hours researching data to help you understand your finances and taxes, including historical context, issues, and solutions. Our goal is to empower people to improve  their relationship with money. ​Please consider a $3 donation today.

    Tax Plan Video

    Important Disclosures


    Spencer Accounting Group, LLC does not provide investment, tax, legal, or retirement advice or recommendations in these blogs. The information presented here is not specific to any individual's personal circumstances.

    ​
    To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
    ​
    These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

    GET STARTED

    Author

    Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion.  Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.

    Keana founded this website and decided and created this blog page to offer a space for those seeking knowledge to understand, however not to be confused with advice or planning strategies.

    RSS Feed

    Accounting Services
    Tax Preparation
    Picture
    Picture
Home
Net30 Account Info
Privacy Policy
Contact Us

Picture
Picture
Picture
Copyright 2021 ALL RIGHTS RESERVED.
Photo used under Creative Commons from verchmarco