Broker Check

Monday Money Report

| December 06, 2023

The market was up again last week, with inflation continuing to slow and the Federal Reserve Bank holding steady on interest rates. Year to date, the S&P 500 is up just over 20%.

Another thing that always seems to be up is taxes. If you have any investments outside of retirement accounts, one way to help reduce your tax bill is tax loss harvesting. While we believe this should be done year-round, December is also a good time to take a look at your investments from a tax perspective.

Tax loss harvesting is when you sell an investment that is at a loss, to realize that loss for tax purposes. It seems counter-intuitive, as if you are selling low. And if you were selling low and not investing in something else, that’s usually not a good idea. Think of harvesting losses more as switching investments. I’m selling Cogsworth Cogs and buying Spacely Sprockets.  I’m still invested in the aerospace industry, but I’ve realized a loss that can help reduce my tax bill. Capital losses will offset capital gains, and up to $3,000 of ordinary income.

The flip side is purposely recognizing gains.  If you have a large loss carryforward, meaning a loss you had in prior years, you may want to sell stock that is doing well to recognize that gain, and have it be offset by the loss you already have on your books. If you’re in a low income year, you may want to recognize gains while you’re in a lower capital gains tax bracket.

The other thing to pay attention to is mutual fund capital gains distributions. When a mutual fund sells a holding, that gain is distributed to shareholders on a set date, usually mid-December. Anyone holding shares on that date will receive a 1099 for their share of the gains.  Most fund companies publish expected gains distributions, so it is worth a conversation with your advisor and tax professional to see if you want to sell any mutual funds prior to the record date of the distribution.

We’re also approaching the deadline to establish Donor Advised Funds for the year. A Donor Advised Fund, or DAF, is similar to a private foundation, but without all the hassle.  You establish an account, or DAF, with a non-profit. When you make contributions to the account, you receive a tax deduction.  The money is invested, and you can then ask that the non-profit holding the account make gifts to charities of your choice any point in the future.  

Your action item this week is to remove your saved credit card information from all the shopping sites you frequent.  This accomplishes two things: first, it makes it harder to click “buy”, giving you time to think about the purchase.  Is it really something you need? Second, it helps protect your information if that company’s system is hacked.  

CovingtonAlsina is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.