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While tax and financial planning should take place all year long, the end of another year provides an opportunity to reassess your current tax situation and make changes as you and your financial advisor see fit. And this year, with the recent pullback in equity markets over the past few months, a number of popular year-end strategies have become even more relevant.

  1. Take Advantage of Tax-Loss Harvesting.
    • Down markets provide a time to offset your investment gains with any losses you’ve experienced, when appropriate, to help reduce your overall tax liability. However, be aware of “wash-sale” rules that stop you from deducting capital losses on the sale of a particular security if you initiate a similar position within a 61-day period (30 days before the sale date and 30 days after the sale date).
  2. Consider a Roth Conversion.
    • Since converting an IRA can result in taxes, some people may hesitate to do so during a down market period when they have fewer discretionary funds. But periods of market volatility can provide a good time to convert your money to a  Roth IRA. By converting during a down market, you’ll be taxed on less than you would have been initially with the potential for greater long-term gain.
  3. Don’t Take Gains Just to Offset Your Losses.
    • Selling positions with capital gains just to offset any losses you’ve experienced could undermine your long-term investing goals. Instead, consider taking advantage of your ability to claim a capital loss deduction of up to $3,000 per year when your capital losses are greater than your gains. And if your total net loss is more than the annual limit, carry over that unused portion into subsequent years.
  4. Find a Good Balance.
    • Each year brings with it new market movements, life changes and updated goals which can make rebalancing your portfolio a priority. Work with your financial advisor to review your portfolio in light of any changes in the market or your own personal circumstances, making adjustments as needed to stay in line with your long-term goals.
  5. Make Timely Gifts and Charitable Contributions.
    • There are many reasons to make gifts at year-end, whether to support your favorite charities and realize deductions or to give to loved ones and maximize your annual gift exclusions (up to $14,000 per person in 2015). In a down market, these gifts can have added estate planning benefits while asset values are depressed, allowing you to gift more shares before reaching your annual limit.

Despite what may be happening in the markets and the overall economy, there are many things you can do to reassess and reallocate your portfolio at year-end. If you would like to see how these strategies might work specifically for you, please give me a call or send me an  email. We will set up a time to discuss how your personalized plan might be positioned to take advantage these strategies. We will include your tax professional in the conversation.  

By Debbie Craig, CFP®, MBA, CRPS®

Branch Manager

You should discuss any tax or legal matters with the appropriate professional.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Unless certain criteria are met, Roth IRA owners must be 59 ½ or older and have held the IRA for five years before tax-free withdrawals are permitted.  Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implication.  Investors should consult a tax advisor before deciding to do a conversion.

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