Year-End Tax Saving Strategies for the Savvy Investor

Year End Tax Savings Strategies for the Savvy Investor

Whether you are new to investing, or have been an active investor for a while, your tax planning strategy should always be in the forefront of your mind. With the end of the year just around the corner, now is the time to take a look at your finances and evaluate whether or not you should be making one or more smart tax planning moves before the year-end deadline. These tips will be especially beneficial for business owners or individuals who earn a significant amount of investment income in order to offset a high tax bill in the Spring of 2020.

1. Tax-loss Harvesting : A key end-of-year tax planning strategy utilized by investors of all income levels is known as tax-loss harvesting. This involves selling assets that have shown a loss in order to offset both taxable ordinary income and any reported capital gains realized throughout the year on other investments. Mutual funds, for example, are fairly consistent with capital gains distributions, so mutual fund holders may benefit from looking for other losses to sell prior to the year-end to reduce their overall liability.

However, there are caveats to this strategy. Since the IRS will not allow investors to buy an asset just to sell it for purpose of owing less taxes, investors need to be wary of the “wash-sale” rule. The “wash-sale” rule indicates that an investor will not be able to claim capital loss if they re-purchase the same asset or nearly identical asset again within thirty days of their loss-showing sale. This being the case, you may want to purchase a similar asset rather than being out of the market for thirty days altogether. 

 2. Retirement Contributions: Contributing the maximum amount to your retirement plans not only helps to increase the amount of your retirement savings, but can potentially lower your taxable income. 401 (k) plans with employer matches should be visited first in order to take advantage of the maximum employer contribution in the calendar year. Unlike 401 (k) contributions which must be made before the close of the year for pre-tax purposes, IRAs have an extended deadline. Individuals have until April 15, 2020 to make IRA contributions that are eligible to count for 2019. 

3. Rollovers and Roth ConversionsWhile income limits prohibit high-earning individuals from opening a Roth IRA, anyone can convert a portion or all of their assets in a traditional IRA to a Roth IRA once a year. The benefit to the Roth IRA is that qualified distributions from a Roth aren’t subject to federal income taxes as long as:

  • The Roth has been opened for at least 5 years
  • The account holder is at least 59 ½ years old

Taxes will be due on the rolled over or converted funds at the time of the conversion, but will be able to grow tax-free from then on into retirement. For many individuals, paying taxes on the lower fund amount now makes more sense than paying in retirement in order to offset other sources of retirement income that will be taxed. 

Essentially, the more funds you expect to receive from tax-deferred assets, the more you’ll need to save to cover the taxes that will accompany them. Many pre-retirees make the mistake of contributing so much to traditional IRA and 401 (k) accounts, that they become “tax-deferred rich.” That is, they accumulate so much in their tax-deferred accounts that they see a huge tax bill at 70 ½ when they are required to start taking RMDs. Diversifying your retirement savings strategies can help you avoid this scenario.

See Our Harbor West Related Article: What You Need to Know About Estimating Taxes in Retirement

4. New Business Capital Expenditure Planning: Business owners who have made investments in their company in the form of capital expenditures may be able to use these expenses to offset income. Of course, the IRS differentiates between operating expensesand capital expenditures and provides different tax treatments for each. 

Capital Expenditures are considered any investments in the business that will be used by and/or benefit the business beyond the scope of a single year. For dentists, for example, office upgrades, putting a new roof on the building, or purchasing new equipment would count as a capital expenditure since the value of these items will depreciate over time, but will allow the dentist to make money over the course of many years. In order to determine how much of your capital expenditures can be written off over the life of the investment, we recommend consulting with your financial professional in order to maximize tax benefits now and in the future.

See Our Harbor West Related Article: 3 Hidden Tax Opportunities Dentists Often Miss

5. Make Tax-Free Gifts to Family: The IRS allows individuals to give as many family members as they like up to $15,000 a year tax-free. Not only will these gifts reduce your taxable income amount, but can reduce the overall size of your estate for estate planning purposes. 

6.Charitable Contributions: Gifts made to your favorite charity in the form of cash or appreciate stock are another great option for individuals who itemize their deductions. A more popular option in recent years has been to consider contributing multiple years’ worth of gifts into a Donor Advised Fund(DAF). Using a DAF allows investors to take advantage of a larger tax break in the current year while still spreading the gifting out over several. 

The financial professionals at Harbor West appreciate the value in calculated tax planning. We work to ensure our clients are taking advantage of the best strategies available to them and use state of the art tax analysis software for all our clients. If you are looking for ways to reduce your taxable income and keep more money in your pocket, we’d be happy to help you evaluate your options. Schedule a Complimentary Consultation  with us today to learn how Harbor West can help you build wealth and secure financial peace for your future. 


This information is provided for general purposes and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on any of the information, please consult your Financial Advisor for individual financial advice based on your personal circumstances. Neither Harbor West nor Geneos Wealth Management, Inc. provide tax or legal advice. 
Harbor West is a division of NorthEast Community Bank. Securities and Advisory Services offered through Geneos Wealth Management, Inc. FINRA/SIPC Investment Advisory and Financial Planning Services offered through Geneos Wealth Management, Inc. Investments are not FDIC Insured. Investments are not deposits of the financial institution and are not guaranteed by the financial institution. Investments are subject to risks including loss of principal.

How to Protect Yourself from Financial Ruin During...
401 (k) Plan Management Options for Dentist-Owners

Get Our Free EBook - 10 Things to Consider Before a Divorce

* indicates required

Financial Strategies for Dentists

* indicates required

cfp board9534FD1045B5478FF01F5336
Regulatory Disclosure: The information on this website has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. This website is neither an offer to sell nor a solicitation to buy any securities. Gerard Gruber offers Securities and Investment Advisory and Financial Planning service through Geneos Wealth Management, Inc, Member FINRA/SIPC.  Investments are not FDIC insured. Investments are not deposits of the financial institution and are not guaranteed by a financial institution. Investments are subject to investment risks including loss of principal amount invested.