The year 2024 has been one of uncertainty. The world has endured several surprise wars, a jittery economy, and an indecisive Federal Reserve. Headlines wavered between impending doom and potential boon. Our two presidential candidates espoused divergent visions of our country’s future. Even fundamental economic principles, such as the relationship between growth and inflation, were called into question. The year also brought some good news — at least for investors. As of Dec. 10, the S&P 500 was up over 28 percent in 2024. Meanwhile, the tech-heavy NASDAQ grew 33 percent and the Dow Jones gained 17 percent for the year. While investor rationale is up for debate, the bottom line is simple. Investors who remained disciplined were rewarded handsomely. Those who avoided markets missed out. Investors should apply similar discipline this tax season. My recent election article explains that it is difficult to predict future legislative changes. Fortunately, there are various tried-and-true tax planning tips available in any environment. Some are even tailored specifically for today’s political climate. The following six tax planning strategies are worth discussing with a financial advisor, accountant, and/or attorney. Note that certain strategies are complex and require personalized guidance. Tax-loss harvesting Tax-loss harvesting is an age-old tax management strategy for investors. The practice involves selling losing investments in taxable accounts, booking the losses, and purchasing replacement securities.[1] The losses can offset capital gains and/or up to $3,000 in ordinary income each year. Losses are hard to come by in stock portfolios this year. However, investors may still have unrealized losses in their bond portfolios following the Fed’s rapid interest rate campaign. Investors should review their taxable accounts for any unrealized losses before year-end. Optimize asset location The first step in portfolio design is asset allocation. This is where the investor selects a desired balance between stocks, bonds, cash and other investments. The final mix determines the risk and return profile for a given portfolio. The next step is asset location. This involves positioning assets where they receive the most favorable tax treatment. Different investments trigger different tax events: bonds generate regular interest, stocks pay periodic dividends, REITs distribute recurring income, and mutual funds make annual capital gains distributions. Each event’s tax treatment depends on the type of account holding the asset. Investors should coordinate their holdings with the appropriate account type. It is generally prudent to hold high-tax assets, such as REITs and certain bonds, in IRAs and 401(k)s. Investors can then concentrate tax-efficient assets, like municipal bonds and certain growth stocks, in their taxable accounts. Tax-advantaged accounts One of the easiest tax-planning strategies is to optimize tax-advantaged accounts. These include 401(k)s, IRAs, HSAs, and others. Readers should first confirm whether they are utilizing their company benefit plans. This can be accomplished with a simple trip to their HR departments. Benefits packages change every year, and many forgo important tax savings opportunities without realizing it. Readers should also maximize their contributions to these accounts wherever possible. See BaldwinClarke’s 2024 Tax Overview for the current contribution limits and income thresholds. Evaluate Roth conversions Roth conversions are a common long-term tax planning strategy. The process involves transferring funds from a tax-deferred retirement account, such as a Traditional IRA or 401(k) Plan, to a Roth IRA. Individuals owe income taxes on any amounts converted. However, future withdrawals from the Roth IRA are tax-free if certain conditions are met.[2] The chief advantage is flexibility. Someone with major one-time spending goals, such as a vacation home or a new car, can access large sums of money tax-free from a Roth IRA in retirement. Withdrawals from a Traditional IRA or 401(k) Plan are otherwise fully taxable. Roth conversions can also result in real tax savings. Our progressive tax system means that high earners pay higher tax rates than low earners. Using the previous example, an individual funding large expenses from a Traditional IRA or 401(k) plan risks temporarily spiking his or her tax bracket. This problem can be mitigated or avoided entirely with Roth conversions. A growing national deficit makes Roth conversions even more compelling. Many speculate that tax rates will rise in the future to cover our nation’s growing deficit. Those that pay their taxes now may benefit from today’s historically low tax rates. Charitable contributions Charitable contributions can be deducted against your taxable income for the current year. These deductions are particularly beneficial for high earners. Charitable deduction limits depend upon the charity classification, gift type, and income level for the taxpayer. Public charities, such as churches and schools, allow a taxpayer to deduct up to 50 percent of their adjusted gross income (AGI) for the current year. The limit rises to 60 percent of AGI if the taxpayer donates liquid cash to the charity. The limits are lower for private charities, such as foundations and fraternal orders. Unused deductions can generally be carried forward for up to five years. An experienced advisor can optimize charitable gifting strategies by evaluating both the type of charity and the timing of the contribution. As mentioned, certain charity types provide enhanced tax benefits. Similarly, certain life stages offer greater savings opportunities, such as years when a taxpayer’s income is unusually high. Estate tax mitigation Federal laws currently allow individuals to transfer up to $13.61 million to heirs without estate taxes. This exemption doubles to $27.22 million for married couples.[3] Moreover, individuals can give up to $18,000 per beneficiary annually without gift taxes. These laws create a very favorable estate planning environment for proactive people. The current estate tax exemption is both historically high and subject to change. Heirs can thank the Tax Cuts and Jobs Act of 2017 for enacting these limits. However, this bill’s provisions are set to expire on Dec. 31, 2025. Before this date, Congress will decide whether to extend the exemption, make it permanent, or impose new limits entirely. The exemption will fall to the previous limit of $5.6 million per individual if no action is taken. Fortunately, the annual gift tax exclusion is not expected to change anytime soon. A simple strategy involves making outright lifetime gifts of cash, property, and other assets to heirs. This option is attractive for anybody with disposable assets, dependent family members, and/or long-term bequest goals. It is also likely to survive potential tax reform. Complex strategies leverage the estate tax exemption using irrevocable trusts. The full scope of these techniques falls beyond the purpose of this article. Readers are encouraged to contact their advisor or attorney for individualized guidance. Philanthropic individuals might also consider certain charitable transfer strategies to further shelter assets from estate taxes. Proactive, not reactive Concerns over potential tax changes are nothing new. In fact, it was only three years ago that the newly elected Biden administration announced plans to raise capital gains taxes for high earners. The proposal stalled in Washington and ultimately failed. Taxpayers who sold assets preemptively faced regret. Readers should act on knowns rather than unknowns. Potential tax changes rely on a host of factors beyond any taxpayer’s control. It is critical to remain discerning and pragmatic in today’s inflammatory political environment. Bryce Schuler is a certified financial planner at BaldwinClarke in Bedford. He and his team specialize in serving successful families, business owners, and organizations throughout New England. [1] Investors may replace the losing investments with similar, but not identical, investments to maintain the desired portfolio allocation. This step is crucial to avoid violating the IRS’s “wash-sale” rule. [2] Roth withdrawals must meet certain conditions to be fully tax-free. The Roth account typically must be open and funded for at least five years. In addition, the account holder must be age 59.5 or older at the time of the distribution or meet certain exceptions (e.g., death, disability, first-time home purchase). [3] The estate and gift tax exemptions referenced in this article reflect 2024 rules.
Dodgers avoid arbitration with Dustin May and Tony Gonsolin, non-tender Brent HoneywellStocks wavered on Wall Street in afternoon trading Thursday, as gains in tech companies and retailers helped temper losses elsewhere in the market. The S&P 500 was down less than 0.1% after drifting between small gains and losses. The benchmark index is coming off a three-day winning streak. The Dow Jones Industrial Average was up 6 points, or less than 0.1%, as of 1:52 p.m. Eastern time. The Nasdaq composite was down less than 0.1%. Trading volume was lighter than usual as U.S. markets reopened after the Christmas holiday. Chip company Broadcom rose 2.9%, Micron Technology was up 1% and Adobe gained 0.8%. While tech stocks overall were in the green, some heavyweights were a drag on the market. Semiconductor giant Nvidia, whose enormous valuation gives it an outsize influence on indexes, slipped 0.1%. Meta Platforms fell 0.7%, Amazon was down 0.6%, and Netflix gave up 1.1%. Tesla was among the biggest decliners in the S&P 500, down 1.9%. Health care stocks helped lift the market. CVS Health rose 1.7% and Walgreens Boots Alliance rose 3% for the biggest gain among S&P 500 stocks. Several retailers also gained ground. Target rose 2.8%, Best Buy was up 2.2% and Dollar Tree gained 2.7%. Retailers are hoping for a solid sales this holiday season, and the day after Christmas traditionally ranks among the top 10 biggest shopping days of the year, as consumers go online or rush to stores to cash in gift cards and raid bargain bins. U.S.-listed shares in Honda and Nissan rose 4% and 16%, respectively. The Japanese automakers announced earlier this week that the two companies are in talks to combine. Traders got a labor market update. U.S. applications for unemployment benefits held steady last week , though continuing claims rose to the highest level in three years, the Labor Department reported. Treasury yields turned mostly lower in the bond market. The yield on the 10-year Treasury fell to 4.57% from 4.59% late Tuesday. Major European markets were closed, as well as Hong Kong, Australia, New Zealand and Indonesia. Trading was expected to be subdued this week with a thin slate of economic data on the calendar. Still, U.S. markets have historically gotten a boost at year’s end despite lower trading volumes. The last five trading days of each year, plus the first two in the new year, have brought an average gain of 1.3% since 1950. So far this month, the U.S. stock market has lost some of its gains since President-elect Donald Trump’s win on Election Day, which raised hopes for faster economic growth and more lax regulations that would boost corporate profits. Worries have risen that Trump’s preference for tariffs and other policies could lead to higher inflation , a bigger U.S. government debt and difficulties for global trade. Even so, the U.S. market remains on pace to deliver strong returns for 2024. The benchmark S&P 500 is up roughly 26% so far this year and remains near its most recent all-time high it set earlier this month — its latest of 57 record highs this year. Wall Street has several economic reports to look forward to next week, including updates on pending home sales and home prices, a report on U.S. construction spending and snapshots of manufacturing activity. AP Business Writers Elaine Kurtenbach and Matt Ott contributed.S&P Dow Jones Indices Announces Dow Jones Sustainability Indices 2024 Review Results