By Tim Courtney, Chief Investment Officer
The final stretch of the year is often very busy, filled with holiday festivities and cherished time with friends and family. Amid the usual year-end rush, it's crucial not to lose sight of your financial agenda. Addressing any pending financial planning tasks will not only pave the way for a relaxed holiday season, but also position you well for an efficient tax-filing period in the coming year.
Here is a list of topics that you might consider addressing before year-end, depending on your circumstances.
1. Tax-loss harvesting: It's important to note that not every position at a loss should be sold. However, strategic tax-loss harvesting, especially for mutual funds and ETFs can be beneficial as the year ends. Studies have shown that for certain investors TLH can provide meaningful after-tax return improvements by counteracting current and/or future capital gains.1
2. Portfolio rebalancing: 2023 has showcased a stark divergence in market performance. Large growth companies have soared to new heights, while much of the rest of the market has stagnated or even entered negative territory.2 Given this wide discrepancy, it's an opportune moment to consider portfolio rebalancing. This will ensure that you're not overly concentrated in specific sectors and that you maintain a diversified exposure aligned with your investment goals.
3. Roth IRA conversion: Given the softening of the market in September and October, a Roth conversion might now be more appealing. If you're considering a Roth conversion during this tax year, remember the conversion must be completed by year-end to be included on this year’s tax return.2 Those with lower incomes in 2023 relative to other years or those wishing to convert while markets are off of their highs could see more benefit to a late 2023 conversion.
4. Estimated tax payments: If you’re self-employed or don’t have taxes withheld from other sources of taxable income, you have until Jan. 15, 2024 to pay your fourth-quarter estimated taxes.4 It’s important to consult your advisor or a trusted tax professional to ensure you’re submitting payment appropriately.
5. Year-end gifting: Contemplating charitable contributions? Think about donating securities that have seen notable growth this year. By gifting appreciated stock from a taxable account, you sidestep capital gains taxes both for yourself and the beneficiary. You may also consider lumping several years’ worth of giving in a single year to maximize your itemized deductions in that year.5 Remember, it's also possible to give directly from an independent retirement account (IRA).6
Recognizing the hustle and bustle that December often brings, we're on standby to assist with your year-end financial strategy. Should any questions arise, please do not hesitate to reach out to your Exencial advisor.
- Investopedia (5/2/23): Tax-loss harvesting: definition and example
- CNBC Make It (7/21/23): One measure of ‘the market’ is up 34% this year while another is only up 6%—here’s why
- SmartAsset (1/11/23): When is the Roth conversion deadline?
- IRS (10/12/23): Pay as you go, so you won’t owe: A guide to withholding estimated taxes, and ways to avoid the estimated tax penalty
- Fidelity Charitable (10/13/23): 4 reasons to donate stock to charity
- U.S. News & World Report (12/22/23): How to donate to charity from your IRA
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