With markets at record highs, most investors are quite content to let their portfolio mark what for most will be an all-time high. Our team is optimistic as well, in the short run, as earnings have been decent and mixed economic data signal no changes from the Fed for the foreseeable future. We are however, watching carefully how the market will react in early 2014 as the debt ceiling will resurface and the Fed will need to revisit the topic of tapering.
This is an ideal time to review your taxable portfolio for tax efficiency. With capital gain and income rate increases for higher wage earners, it is important to consider several planning strategies that may allow you to write a smaller check to the IRS in April.
1) Review your realized gains against your unrealized losses for year-end loss harvesting
In a calendar year, capital gains can be offset by capital losses and the loss carry forward can be used in future years as well as offset $3000 of earned income. Beware to pay attention to the wash sale rule regarding the repurchase of those same securities.
2) Gifting with low cost basis stocks
This time of year, many families true up their charitable giving and make monetary gifts to adult family members. With the higher capital gain rates and phase out of itemized deductions, gifting low basis securities makes more sense than ever. For a qualified charity, you can gift securities with embedded gain and take a deduction on the fair market value. The charity can sell the security tax free. If you still want the security in your portfolio, you do not need to wait to repurchase the same investment with the very same cash you were going to give the charity. Adult family members in low tax brackets are also ideal candidates for this type of gifting as they can sell the security with a substantially lower tax bill.
These are just a couple of considerations to discuss with your financial and tax advisors before December 31st. It is important that any decisions be made before the end of the year to accurately reflect on the 1099 tax documentation you will receive in February and March of next year.
Recently I wrote a White Paper detailing additional year-end planning strategies that may help reduce your year-end tax bill. Please feel welcome to look by clicking the link below:
2013 YEAR-END TAX PLANNING GUIDE
HighTower does not provide tax or legal advice. Investors are urged to consult their tax or legal advisor prior to making investment decisions.
If you have any further questions, I would be more than happy to address them. You can email me at gsarian@hightoweradvisors.com or call me at 610-850-9052.
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