Fourth Quarter Tax Moves

Want to do something meaningful in the last quarter of 2023?

Spend less time analyzing the market and more time on reducing taxes. After all, research by Morningstar cites that over the past 95 years ending 2021, investors lost about two percentage points of their annual returns to taxes. As you focus on taxes, here are four key tax-planning strategies to keep in mind.

Tax-Loss Harvesting: Identify investments with losses in taxable accounts and consider selling them to offset capital gains. Any excess losses can be used to offset up to $3,000 of ordinary income.

Maximize Tax-Advantaged Accounts: Contribute the maximum allowable amount to tax-advantaged accounts such as 401(k)s, IRAs, or Health Savings Accounts (HSAs).

Tax-Efficient Investing: Look for opportunities to rebalance out of tax-inefficient positions and individual stocks to take advantage of the efficiency of index funds and passively managed funds (including ETFs). On top of that, consider tax-efficient asset location by placing tax-inefficient investments (e.g., bonds with interest income) in tax-deferred accounts.

Manage Required Minimum Distributions (RMDs): If you are age 72 or older and have traditional retirement accounts, ensure you take your annual RMDs before the year-end deadline to avoid hefty penalties. Consider using your RMD to make qualified charitable distributions (QCDs) directly to charities to lower your taxable income.

Remember, it’s not what you make. It’s what you keep.

Financial Planning With a Tax Focus

Taxes will likely be the biggest drain on your portfolio over a lifetime of investing, you cannot afford a mindset of “you don’t know what you don’t know” when it comes to taxes. If you have $1 million or more of investible assets and are ready to build a tax-efficient investment and financial plan, let's strategize together.