Taxes….Always On My Mind

Patrick Cote |

BY: KATE HENNESSY, CFP®

Strategizing about ways to keep more of your money and put your savings to work should be done throughout the year, not just during tax season.  Here are a few of my favorite tax-smart steps to consider throughout the year:

  • Standard Deduction or Itemize? 90% of taxpayers claim the standard deduction. For 2024 the standard deduction for married couples increased to $29,200 and for single filers the deduction is $14,600.  If you believe your itemized deductions, (which include state and local real estate taxes (capped at $10,000), home mortgage interest on the first $750,000 of your mortgage debt, and charitable donations) may exceed the standard deduction then you should itemize these on your return. If your income may be higher in a given year consider bunching your charitable donations. With bunching, you aggregate a greater amount of giving than during a normal year and use this higher deduction amount to offset your higher income.
  • Tax Efficient Investing – Where you invest your money (stocks vs bonds) and in what type of account (taxable vs tax-deferred) can help to reduce your taxable income and allow you to keep more of your earnings.  Investments like bonds that generate interest income are taxed at ordinary income tax rates and should be held in tax deferred accounts (IRAs, 401ks).  Stocks that are held for more than a year and then sold at a profit incur long term gains which are then taxed at the lower capital gains rate and therefore should be held in taxable accounts.
  • Tax Loss Harvesting – Review your taxable brokerage account for investments with losses. By capturing/realizing these losses, they can be used to offset ordinary income and carried forward indefinitely to offset short and long term capital gains.  However, be aware of the IRS’s “wash sale” rule. The rule states that investors who sell a security at a loss cannot claim it if they have purchased the same or similar security within 30 days before or after the sale.

Tax planning isn’t a one and done exercise. Like other aspects of financial planning, it should be done regularly throughout the year and consulting with a tax advisor or financial planning professional can help you to put more of your money to work in support of your financial goals.