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End of Year Planning Activities
Shared by Strong Valley on December 6, 2019
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Some quick thoughts and ideas to consider for your end-of-year planning:
  • Giving to charities or non-profit organizations? Donating securities can be much better for both the charity and the donor than giving cash.
  • Get advice on potential tax-loss selling and avoiding unnecessary capital gains.
  • Employees should look at maxing out your 401(k) or 403(b) elective contributions for the year.
  • Business owners should investigate how profit-sharing programs can create new employee benefits and improve their retirement savings while reducing your overall tax burden.

Important Disclosure: Content on our website and in our newsletters is for informational purposes only. The information provided may (or may not) directly apply to your situation. We recommend that readers work directly with a professional advisor when making decisions in the context of their specific situation.

Why Use Securities for Charitable Giving?

Using securities instead of cash can provide more benefits to both the charity and the donor.  In fact, stock donations may represent 20% more financial value to the charity. This means that donors can give more money to the charity by donating securities instead of selling the same stock in order to make a cash donation, or worst of all just writing a check.   And donors may also benefit from additional tax benefits and capital gains savings over charitable giving of cash alone.

There are some basic rules and guidelines, such as having held the appreciating stock for more than a year and ensuring that the transaction is received by the charity (not just started) by the end of the calendar year.  Donors may be worried about the complexity, but the process can be much easier than donors may think.  There are even donor-advised funds (DAF) that can allow you to make your contribution now in the current tax year, even if you haven’t yet decided on which charities to give to.

diagram showing sequence of charitable giving of securities without capital gains tax

As your financial advisor, we can also help you decide which securities will make the most sense to donate. For example, selecting stocks as part of rebalancing your portfolio, or making a shift in your overall strategic investments.  If you are considering charitable giving, now is the time to start those discussions so you can make the right decisions ahead of any end-of-year rush.

Tax-loss Selling & Capital Gains Reduction

Bottom-line financial performance for the year may often be less about earning more, and more about the ability to save and keep what you earn.  One of the ways Strong Valley helps clients achieve better financial performance is by looking for opportunities to maximize savings and mitigating the tax burden and potential penalties from capital gains.

We look for tax losses within your security portfolio and replace those losses with equivalent security for at least 30 days. This allows you to record the loss for tax purposes while keeping your portfolio performance relatively unchanged. Up to $3,000 per year can then be written off towards earned income while keeping the rest for future tax years.

One capital gains example includes monitoring mutual funds in client accounts to see when those funds pay gains and determining if those gains are appropriate for the client’s situation. If not, then we can avoid unnecessary capital gains by selling the fund and moving to equivalent security for a short period before repurchasing the fund.

Maxing Out 401(k) / 403(b)’s For End-of-Year Contributions

We recently wrote another article about the new contribution limits for 2020 that covers some of the concepts and elements of maximizing your retirement contributions. In addition to maximizing any employer contributed matching, you may also want to make additional “catch-up” contributions to ensure that you take advantage of the total allowable savings deductions for the entire year.  Of course, we will work closely with you to make sure those investments are allocated correctly, and to help you make decisions in line with your specific circumstances.

Business Profit Sharing Programs

If a business has a good year it may make sense to defer additional income by building up cash to prepare for a possible profit-sharing contribution plan.  This is a completely discretionary decision, but it is one that could put more into your retirement account, and less into the hands of Uncle Sam.  Profit-sharing plans can also be a great benefit for attracting and retaining employees – especially as unemployment numbers change and hiring becomes more competitive.  Strong Valley can help business owners understand the options for structuring and maintaining a profit-sharing plan that can provide the most flexibility for your specific business.  And probably, more importantly, provide advice on how to avoid some of the common pitfalls that can occur when a plan isn’t tailored correctly for your specific business and situation.

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results or even estimates of actual returns a client may achieve. This information is designed to provide general information on the subjects covered. Consult your financial professional before making any investment decision. Opinions and estimates offered are subject to change without notice. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. Please see other important disclosures related to

Your turn – What would you like to know about End of Year Planning Activities?

Strong Valley wants to provide useful and meaningful information to our clients, to our professional network, and to the broader community of people we serve. We’d love to hear your questions about End of Year Planning Activities or about any other topics you care about. You can call our office directly, or use the contact form below to send us your questions and/or suggestions.  And if you found the information helpful or entertaining, we hope you'll share the Strong Valley story with others.

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