Robert Kiyosaki, author of best-selling book, Rich Dad, Poor Dad, has a quote, “it’s not what you make, but what you keep.” One of the best ways to keep more of your money is to take advantage of opportunities as they present themselves. The volatile markets of 2022 have presented a couple of tax savings opportunities you may want to explore before year end. While everyone’s situation is unique, below are the top three strategies we are discussing with our clients at Marzano Capital Group.
TAX LOSS HARVESTING
Even though an investment has lost value it can still help your taxable portfolio. Tax-loss harvesting is a strategy that can help investors minimize any taxes they may owe from capital gains or regular income. Selling the investment at a loss allows you to reap some economic benefit while reallocating funds in more productive areas of your portfolio. However, if you sell stock for a loss, you are not allowed to buy substantially identical stock or securities within 30 days. This is called the wash-sale rule and if you violate it, the IRS can penalize you by removing any tax break you enjoyed from harvesting losses.
ROTH CONVERSION
A ROTH IRA conversion allows you to move funds from your traditional IRA to your ROTH IRA. The funds that are “converted” are taxed as income in the year of the conversion. However, once in the ROTH IRA they will continue to grow tax free and are distributed tax free in the future. Now is a great time to convert if it fits your financial situation with the stock market down from the beginning of the year. A decline in the value of your portfolio may actually be advantageous as it will be cheaper to convert your funds. Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of the conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
QUALIFIED CHARITABLE DISTRIBUTION
Charitable-minded taxpayers over the age of 72 who are financially comfortable and do not need their required minimum distribution (RMD) to meet their living needs have another strategy available to them. These investors may be able to make a qualified charitable distribution (QCD) from their traditional IRAs directly to a non-profit organization. This move satisfies their annual IRA (RMD) obligations and avoids income tax on the transferred amounts to non-profits. However, taxpayers should be aware of specific rules prohibiting making QCDs to donor advised funds and private foundations or from SEP IRAs, SIMPLE IRAs, and 401(k) plans.
Perhaps, one or more of these strategies will help you save on this year’s tax return allowing you to keep more of your money. If any of the above strategies sounds like something that could help your situation, I urge you to give our firm a call so we can discuss if it is a fit for you.
Marzano Capital Group and LPL Financial do not provide tax advice or services. Please consult your tax advisor regarding your specific situation.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Independent Advisor Alliance, a registered investment advisor. Independent Advisor Alliance and Marzano Capital Group are separate entities from LPL Financial.
