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Year End Tax Strategies, Pt. 2: Portfolio Checkup

(posted: November 23rd, 2015)


Portfolio Checkup: Three Strategies For Tax Season

The end of the year offers a built in reminder, along with New Year's resolutions, to give your portfolio a checkup.

Here are three strategies you might want to consider to help boost your after-tax returns.

Harvest Losses
No one likes a losing investment but at tax time, they can be blessings in disguise. You can use capital losses to offset taxable capital gains, plus up to $3,000 in ordinary income ($1,500 for married couples filing separately). Look in your taxable accounts for investments with relatively large losses where you don't expect a comeback. Remember, any losses you can't use to offset gains this year can be carried over into future tax years. Watch out for the wash sale rule, though, which prevents you from recognizing losses on sales of securities that are repurchased within 30 days.

Note for high earners: Those in higher brackets stand to benefit the most from harvesting losses, with the increased capital gains tax rates for taxpayers in the top bracket and the 3.8% surtax on net investment income over the modified adjusted gross income (MAGI) threshold of $200,000 ($250,000 for married filers).

Optimize Tax-advantaged Accounts
You may be able to bring your asset allocation back in line without incurring taxes by rebalancing tax-deferred retirement accounts like IRAs or 401(k)s.

Consider Cash Flow
If you're living off your portfolio in retirement, remember to set aside any cash you might need for the next 12 months as you rebalance. For example, if your portfolio is heavy on stocks, you could take out what you need to live on from that portion and then reinvest the rest in bonds until you're back on target.

This post is part of our series on steps you can take at the end of the year to make tax time easier. The Year End Tax Strategies series includes:

As always, if you need help or wonder if any of these strategies is right for you, please Contact Us!

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