As year-end approaches, you may be wondering how you can offset income to reduce your tax burden. As a business owner, and individual, here are options.
- Tax-Loss Harvesting
- Bunching Expenses
- Deferring Income
- Integrating a tax-aware solution into your investment plan
- Gifting Stocks
- Investing Spare Cash
One of the most effective tax strategies to offset income is tax-loss harvesting. This strategy allows an investor to use excess capital losses to offset ordinary taxable income. Losses on investments are allowed up to $3,000, and any remaining amounts can be carried forward to future tax years.
Tax-loss harvesting is most valuable in situations when investors are trying to rebalance their portfolio and diversify out of a concentrated stock position. Short-term capital gains are generally taxed at a higher rate than regular income, so harvesting losses is important to minimize short-term gains.
Capital losses can be carried forward and offset capital gains for a certain period of time. For instance, if you sold stocks during the recession, you could use the proceeds of those sales to offset capital gains. This strategy can offset capital gains for many years because losses are allowed to carry forward.
Another tax strategy to offset income is bunching expenses. For example, buying supplies in bulk and paying bonuses at the end of the year will help you minimize your tax burden. Additionally, you can make smart purchases during the year and use those savings to reduce your tax liability. It is also important to purchase major items for your business at the end of the year.
For business owners, deferring income could help reduce taxable income in the current year, but it could lead to a tax problem in the following year. This is why it’s important to keep track of the changing tax laws. If you’re not sure what steps you should take, talk to us.
Using a financial advisor is also a smart way to minimize the impact of taxes on your investments. These advisors can integrate tax-aware solutions into your investment plan. The goal is to reduce your overall taxes and minimize the amount of income you have to pay.
Another great way to reduce your tax bill is by gifting stocks. These tax-free gifts can lower your family’s tax burden. While some gifts are tax-free, the gifting of stocks is still subject to federal gift tax. You can gift up to $16,000 per recipient, but you must remember that the amount will be subject to the federal gift tax.
Another tax strategy for business owners with spare cash is to invest it. This tax-friendly investment helps reduce your taxable income and increase your company’s success. However, you should consult with us [link] if you are unsure about the best tax deduction strategy for you.
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