5 steps to take now to cut your 2022 tax liability: Harvest your capital losses
High inflation, rising interest rates, and a downturn in the stock market have all made for an eventful year. While there isn’t much you can do to change any of these financial aspects, you can influence how much your federal tax bill will be for the year. So here is the fifth and final pre-year-end planning idea that could help you lower your tax obligation for 2022 or in the future: harvesting your capital losses.
Harvesting your capital losses
Selling off your investments to offset any capital gains is another option to take advantage of the weak market performance in 2022. For example, suppose your capital losses are more than your capital gains. In that case, you can deduct up to $3,000 ($1,500 for married taxpayers filing separately) per year from your ordinary income and carry any leftover excess for an indeterminate period.
Giving the money from the sale to a good cause would enhance the advantages of loss harvesting. You’ll increase your charitable contribution deduction while offsetting realized gains (subject to AGI limitations on the charitable contribution deduction).
But remember to follow the wash-rule. It states that if you purchase “substantially identical” securities within 30 days of the transaction, you cannot deduct your losses.
Taking action now to cut your 2022 tax liability
Many people have had difficult financial years and worry that the economy will last into the following year. But one thing is sure: everyone wants to pay less in taxes. So to get help with your year-end tax planning, contact our RRBB accountants and advisors today. Missed the last four tips on how to cut your 2022 tax liability? Here they are!
- Converting your traditional IRA to a Roth IRA
- Deferring or accelerating income and deductions
- Managing your itemized deductions wisely
- Giving to charity
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