Government Discounts: Black Friday Edition

Main Idea: Five year-end tax strategies that could help you reduce your "gift" to the IRS.

This time of year often brings a wave of FOMO and urgency, turning that air fryer you’ve been eyeing into a must-buy at 50% off, just like the combo pack of the leaf blower and trimmer at half price.

Okay, maybe those are just my wish list items, but you get the idea.

While the government (IRS) doesn't offer Black Friday sales, there are important strategies to potentially reduce your tax bill (your "gift to them") as we near the end of 2024.

Black Friday "Tax Discounts"

?? IRA and Workplace Retirement Contributions

If you haven't yet, now would be the time to make sure you've made your contributions to your employer-sponsored retirement accounts such as your 401(k) and others.

This will allow you to directly lower your income in the eyes of the IRS, so when you go to apply your tax rate to that income, it will be lower.

?? Tax Loss Harvesting

It'll be difficult because we're coming off two fantastic years in the market (both probably ending up over 20%), but it's still possible.

I'm talking about here is when you sell investments that have decreased in value to offset capital gains from other investments, thereby reducing your overall taxable income.

You can then reinvest in similar assets to maintain your portfolio’s strategy while benefiting from the tax deduction.

This comes with the caveat that you a) have gains to offset this year, and b) ensure you don't break the wash sale rule.

???? If the losses exceed the gains, up to $3,000 ($1,500 if married filing separately) can be used to offset other income, with any excess carried forward to future years.

?? Qualified Charitable Distributions

Since Christmas is the season of giving, how about you bring out that IRA and donate to a cause you care about.

All seriousness though, QCDs can be a great opportunity to kill two birds with one stone.

QCDs are for those in retirement who can take their RMD and send it to a charity they care about, effectively checking off both their annual donation and RMD with the click of a button.

???? Opening a DAF or bunching up your donations into one single year can be a possible strategy as well, but that deserves an article of its own.

?? Roth Conversions & Gains Harvesting

If you're not familiar with a Roth Conversion, it may be a great conversation to have with your financial advisor.

It involves taking a tax hit today with the aim of paying no taxes on those same assets when they grow in value later in life.

Many of our clients consider this strategy at the end of the year, especially if they've retired but haven't started Social Security payments.

Similarly, gains harvesting works like loss harvesting, but here we take gains up to the next tax bracket to gain more control over those assets without incurring an additional tax hit.

Both of these are more on the give up some now to get more later side of Black Friday sales.

?? Mutual Fund Nonsense

I don't like mutual funds. I think they're inefficient and outdated.

With that being said, many of our clients have mutual funds in their 401(k)'s because that's essentially what's allowed.

Optimizing mutual funds during and after your working years is crucial.

It can be wise to sell mutual funds before distribution season or delay purchasing them until after it passes.

Distributions are typically sent out at the end of the year, and even if you bought in recently, you'll face a tax bill as if you had invested at the beginning of the year.

CONCLUSION

That's all for now, folks. Make sure you take action before this sale ends.

My parting note is that my wife, who is smarter than me, has made me understand that Black Friday sales are typically dispersed throughout the entire year, it's just they ramp up marketing during these times. So...do with that knowledge as you please.

Good follow up: Some folks have lost track of an old 401(k), so I'm adding an article that'll help you find that puppy. Second, a really helpful article on QCDs if you're interested.

???? Not that I'm insisting on you purchasing something, but if you do, you can check its price history on camelcamelcamel.com.

Action Item: Run through this checklist with your husband/wife or financial advisor/CPA and take the proper steps if it makes sense for your situation.

This content reflects the opinions of the author and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as financial, legal, tax, or investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not indicative of future results. All investing involves risk, including the potential for loss of principal. The information contained in the commentaries is derived from sources deemed to be reliable, but its accuracy and completeness cannot be guaranteed. This material does not have regard to specific investment objectives, financial situation, or the particular needs of any specific reader. Any views regarding future prospects may or may not be realized. Neither Asset Allocation nor Diversification guarantees a profit or protect against a loss in a declining market. They are methods used to help manage investment risk.