Three Year-end Tax Planning Actions to Consider Now
While we entered 2022 with a lot of uncertainty regarding potential tax law changes, very few of the proposals that would have impacted wealthy taxpayers were enacted. Now that there is certainty on the tax landscape until the end of the year, taxpayers can plan with a high degree of confidence and try to minimize their 2022 tax liabilities.
Harvesting tax losses
As market volatility has been particularly high this year, an advisor might be able to help you find significant opportunities to harvest losses within your portfolio. Harvesting losses requires you to sell an investment at a loss. You then can use this loss to offset either already-realized gains, or embedded gains that you can realize now or in the future. If you still like the asset, you can buy it back—so long as you are careful not to violate the “wash sale rule” which prevents you from taking a loss if you buy a “substantially identical” security within 30 days before or after the loss trade date.
Deducting charitable contributions
It is always advisable to try to time your charitable donations to ensure their associated deductions are effective in the intended tax year. If you are unsure which charity you want to support but would like the deduction for this year, consider donating to a donor-advised fund. Tax deductions for donations to DAFs are immediate, but the payout from the DAF to another charity does not have to be.
An individual can now transfer $12.06 million tax-free.
Giving tax-wisely to your children
If you have a remaining lifetime gift and estate tax exclusion, you may want to use it now while the exclusion amount is at an all-time high. An individual can now transfer $12.06 million tax-free (married couples can transfer twice that). This exclusion amount is set to decrease to $5 million (inflation-adjusted) after 2025. An advisor can help quantify your gifting capacity so that you can transfer assets without jeopardizing your own financial security in the future.
Rick Barragan is the Managing Director, Los Angeles Market Manager, for J.P. Morgan Private Bank.
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privatebank.jpmorgan.com/los-angeles
