Why Your Year-End Tax Strategies Should Be Underway Now
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Here's your money briefing for Wednesday, September 28th. I'm J.R. Whelan for The Wall Street Journal. It's not even October, but before you know it, it's going to be time to get all your paperwork together to do your taxes next year. And current market conditions give taxpayers a reason to start planning out their year-end tax strategies now.
This is a good time to take a fresh look at your investments, especially your stocks, because so many of them have been hit so hard recently.
On today's show, Wall Street Journal contributor Tom Herman will tell us how those losses can actually work to your advantage. That and other tips to help ease your tax bill next year after the break.
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Taxes are one of life's few guarantees, as the saying goes. But while it might seem a little early to think about traditional year-end tax strategies, making certain moves now could wind up keeping more money in your pocket and less in Uncle Sam's. WSJ contributor Tom Herman joins us with more. Tom, thank you very much for being with us.
My pleasure, JR. Good to be with you.
Why should you start year-end tax planning before October?
So, Tom, we're not even into October yet. So why should people start thinking about their year-end tax plans now?
Well, there is still plenty of time to take a few relatively simple steps to save money on your taxes this year, but it's smart to start thinking about it now rather than waiting until the final hour. Some of these steps may require some homework on your part, and they may take time to execute, so don't wait until just before New Year's Eve.
All right, so let's talk about a few areas that people can start focusing on now. For a lot of people, their investments have taken a beating this year. But how can that work to their advantage regarding next year's tax bill?
This is a good time to take a fresh look at your investments, especially your stocks, because so many of them have been hit so hard recently. If you were to consider selling something, consider selling it now rather than waiting. Those losses can be very valuable at tax time for a number of reasons. Number one, you can offset your losses and your gains dollar for dollar with no upper limit. So for instance, if you had a $10,000 gain earlier this year and you now sell stocks for a $10,000 loss, you put the two together and you don't have to pay any capital gains tax on that $10,000 gain earlier this year. Then there's another factor that many people don't know and that is supposing your losses are bigger than your gains and that's the case with a lot of investors these days.
in most cases you can take up to $3,000 of your realized net losses against your other income, such as your wages and other income. So that's a very valuable thing to keep in mind. The limit is only $1,500 if you're married and filing separately, but most people don't. So that's a very valuable thing to do. And if you have even more losses, you can spread them over future years. In fact, excess amounts get carried over into future years.
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