Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.
Hooray…Tax season is here again. I’m not sure which bugs me more: writing a check on April 15 (this year extended to April 17), or spending hours of valuable time gathering receipts and filling out forms just for the privilege of paying up – or to get my own money back from Uncle Sam!
I consulted business partner and CPA Woody “The Tax Man” Alpern, who shared some tips on how to minimize your financial liability:
Wipe out your gains. Capital losses can be used to offset capital gains. If, for example, you have a $5,000 gain on one investment and take a $6,000 bath on another, the loss will — for tax purposes — wipe out the gain and leave you with an additional $1,000 to offset capital gains in future years. You can also use up to $3,000 of capital losses to offset ordinary income, including your salary.
Lemonade from lemons. If you sold a rental property that you managed yourself at a loss, that loss may be applicable as an income deduction. Also if you sold a rental property and had previously “suspended passive losses” from losing money on the rent, all these previous “suspended losses” are now unsuspended and can be used to offset ordinary income.
Lock in today’s cap gains tax rate. If you are concerned about the capital gains tax rate going up, consider this strategy: Sell some of your appreciated stocks or mutual funds, pay the tax at today’s (relatively) favorable capital gains rate; and then use the remaining proceeds to buy the stock again, or make another similar investment. For example, if you are selling a utility stock like Southern Company, you can then turn around and buy a utility ETF, such as XLU.
Give it away. Consider donating appreciated stock to a favorite charity. You get to deduct the fair market value of the stock but don’t have to pay tax on the appreciation. You can also give appreciated stock to your child, and then let the child sell it at the lower rate. Under the “Kiddie Tax Rule,” children can have up to $1,900 of unearned income taxed at the lower child’s rate.
And of course, be sure to consult your own CPA or tax adviser.
– By Wes Moss, for Atlanta Bargain Hunter