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2021 Last-Minute Stock Portfolio Tax Strategies

It won’t be long until 2021 is behind us, but your stock portfolio can represent a treasure chest of opportunities to reduce your 2021 income taxes. Once you know the tax code, you’ll have the key to unlock a trove of tax savings strategies. There are several options available to help you avoid high taxes on short-term capital gains and regular income. You also may be able to lower your taxes to 23.8 percent or less by making the profits subject to long-term capital gains.

Here are 7 Portfolio Tax-Planning Strategies

  1. Sell unwanted stocks so that you can offset short-term gains (subject to a high tax rate of up to 40.8 percent) with long-term losses (up to 23.8 percent). The high taxes will be offset with low-taxed losses, and you can pocket the difference.
  2. Use long-term losses to create a $3,000 deduction against ordinary income.
  3. If you are an individual investor, avoid the wash-sale loss rule, which means that if you sell a stock and purchase identical stock or securities within 30 days before or after the date of sale, you won’t recognize your loss on that sale. Instead, the code makes you add the loss to the basis of your new stock. You’d have to allow for that 30-day “rest” period if you want to use the loss in 2021–time is ticking out.
  4. If you sell stocks to purge capital losses, you can immediately repurchase the stocks after you sell them—there’s no wash-sale gain rule here. It can be beneficial to sell additional stocks, rental properties, or other assets to create offsetting capital gains with this in mind.
  5. Consider giving appreciated stock to your parents and your non-kiddie-tax kids. If they are in a lower tax bracket, you can gift them stock, have them sell it, and pay taxes on the stock sale at their lower tax rate.
  6. Donate appreciated stocks to charity rather than cash. You can deduct the stock’s fair market value as a charitable donation, and you won’t pay any of the taxes you would have had to pay if you sold the stock.

    For example, if you bought stock worth $1,000 and its value increased to $11,000, you could donate it to charity. You would then get a tax deduction for $11,000, and you would not pay taxes on the $10,000 profit.

    Just remember, your deductions may not exceed 30 percent of your adjusted gross income. If your stock donation exceeds 30 percent, the tax law allows you to carry forward the excess for up to five years.

  7. Take advantage of a loss. If you have a publicly-traded stock that you can sell at a loss, don’t give it to charity—you won’t get a deduction for the loss.

The year is winding down quickly, so start making your tax savings plans now. Call me for details, at 201.787.6542, or for answers to all of your year-end tax questions

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