The end of the year is quickly approaching!
As you think through and process your 2019, have you thought about how much you might give the government in taxes?
During the party prep and your time off work, you might be thinking about a few ways to reduce how much you’ll pay.
One option that’s gaining steam lately is called tax-loss harvesting.
How to manage your investments to reduce your taxes
Tax-loss harvesting is a strategy you can use to reduce your capital gains taxes.
Here’s a simple example to play this out.
If you have $20,000 in gains for this year, you’ll want to choose which investments you can sell that will actually give you a loss. Many firms actually use computing software that sorts this out easily. If you sell at a loss of $10,000, then you’ve cut those capital gains — and your capital gains taxes — in half.
It might sound a little backward, but the strategy here is that the losses you generate will cut your capital gains.
Your goal: defer income taxes into the future
Make sure you’re taking a long-term view of your investments.
You want to keep as much money as you can in your taxable investments (whether they’re stocks or funds) as long as you can, so they can compound the interest.
If you’re taxed every year on your gains, then you don’t have as much money in to grow interest.
Harvesting your losses and gains can help you if you can delay paying those taxes until you make less income (generally upon retirement) and then you fall into a lower tax bracket.
It’s one strategy that might help you in your financial future.
Do you have specific questions about your long-term strategy? Contact the experts at Morgan & Associates for more personalized advice.