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Portfolio Gold Mine and Your 2020 Income Taxes

Did you know your stock market portfolio can be a “little goldmine of opportunities?”

It can through the tax code’s offset game, including these basic rules:

  1. Avoid high taxes (up to 40.8%) on short-term capital gains and ordinary income, or
  2. Lower taxes to zero, or at least to 23.8% or less, by making profits subject to long-term capital gains.

To avoid paying taxes at a nearly 72% increased rate (the increase from 23.8% to 40.8%), here are seven possible tax-planning strategies you can use.

7 Tax-Planning Strategies

  1. Unload unwanted stocks. Offset short-term gains subject to high tax rates with long-term losses and pocket the difference.
  2. Create the $3,000 Deduction. Use long-term losses to create the $3,000 deduction allowed against ordinary income.
  3. Avoid the Wash-Sale Rule. If you sell a stock or another security, sit on your hands for more than 30 days before repurchasing that stock or an equivalent to avoid eluding the loss.
  4. Offsetting Capital Gains. If you have capital losses or capital loss carryovers, sell additional stocks, rental properties, or other assets to create offsetting capital gains and to purge capital losses. You can then immediately repurchase the stock after you sell it and avoid the wash-sale “gain” rule.
  5. Gifting Appreciate Stock. If you’re contributing to your parent’s retirement or children’s living expenses, give appreciated stock. They can then sell the stock and pay taxes on the stock sale at their lower tax rates.
  6. Donate Appreciated Stock. When giving to charity, use appreciated stock because it gives you more tax benefit than cash. Remember, when donating to a 501(c)(3) organization the deduction may not exceed 30% of your adjusted gross income. If it does exceed the 30% rule, tax law allows you to carry forward the excess until used, for up to five years.
  7. Do Not Give Stock Losses to Charity. If you sell the stock, you have a tax loss that you can deduct. If you give the stock to a charity, the loss deduction disappears.

This is complex and may be confusing. Give me a call in December to help you sort through your options.