Money Matters
Presented by Community Partner Vision Financial Group, Inc.
As winter ends it brings in the beautiful spring season. Unfortunately, it also signals the time to complete tax returns. While this task is never fun, you can find some sense of accomplishment as the return is finished. Investment and giving decisions can be maximized to reduce the amount of taxes you pay each year. Here are four ways to increase your assets by utilizing smart investing and giving strategies.
1. Lump your giving. The elimination of the personal exemption and increase of the standard deduction in the 2018 Tax Act has given rise to a strategy of lumping your charitable contributions into a single tax year and then “skipping the donation” the following year. Used in coordination with a Donor Advised Fund, this approach can reduce your overall tax liability without adjusting the timing of your actual donations to your favorite charity. As an example, if a married couple donates $20,000 per year and they have $10,000 of state and local taxes, their total deductions for each tax year would be $30,000. Over two years they would have $60,000 of deductions. By lumping their giving into one tax year they would have $40,000 of giving and $10,000 of state and local taxes in year one (for a total of $50,000 in deductions that year). In year two they take the standard deduction of $24,000. Over the two year period they now have $74,000 of deductions. If they are in a 22% tax bracket that strategy would save them $3,080 dollars in taxes!
2. Donate appreciated stock. With the market up substantially last year, reviewing your portfolio to find appreciated stock to donate allows you to obtain the tax deduction for giving without having to recognize the gain on the securities. A win-win proposition!
3. Tax budgeting in your portfolio. In connection with your advisor you can take active steps to manage your tax budget by:
- Hold stocks (when possible) for a minimum of one year to obtain the lower tax on long-term capital gains.
- As the year ends, look to realize tax losses and offset gains in your portfolio with positions that have gone down in value since they were purchased.
- Use realized gains to offset any tax loss carryforwards from prior tax years.
- Use tax lot management if you have stocks that you have purchased at different times by selling or donating specific shares of that stock.
4. Asset location. By allocating securities that produce interest income into your IRA or Roth IRA accounts and allocating stocks that are growth or long term hold stocks you can reduce your current tax expense and in many cases reduce or eliminate the taxes completely. If you have not reviewed your portfolio for taxes with your advisor, you should consider doing that in 2021. As always, the tax strategies should supplement your overall investing strategy.
–Mike Mungenast, Sr. Vice President, Senior Advisor 
Vision Financial Group
4505 Pine Tree Circle, Birmingham, AL 35243
205-970-4909
Investment advisory services offered through Investment Advisors, a division of ProEquities, Inc., a Registered Investment Advisor. Securities offered through ProEquities Inc., a registered broker-dealer and member of FINRA and SIPC. Vision Financial Group, Inc. and West Alabama Bank are independent of ProEquities, Inc. Securities and insurance products offered are not bank deposits, have no bank guarantee, are not FDIC insured, and may lose value. 2018 Broadridge Investor Communication Solutions, Inc. All rights reserved.
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