Sample client recommendations.
Proactive Tax-Loss Harvesting Initiative
Implement a tax-loss harvesting strategy: Regularly review your taxable investment accounts for opportunities to sell investments at a loss to offset capital gains. This can help reduce your overall tax liability while maintaining your investment strategy.
Example: Jennifer, a 55-year-old business owner, has a $1,000,000 taxable investment account. In October, she realizes she has $50,000 in capital gains from selling a rental property. She reviews her investment account and finds that one of her stock funds has a paper loss of $30,000. She sells this fund, realizing the loss, and immediately reinvests in a similar (but not identical) fund to maintain her investment strategy. This helps to reduce her taxable capital gains from $50,000 to $20,000, potentially saving her $7,200 in taxes (assuming a 24% tax bracket).
Qualified Opportunity Zone Investment Exploration
Explore the risk and potential rewards of Qualified Opportunity Zone investments: If you have significant capital gains, consider investing in Qualified Opportunity Zones. This strategy can provide tax deferral and potential tax-free growth on your investment if held for at least 10 years.
Example: Marcus, a 50-year-old entrepreneur, sells his startup for a $2,000,000 capital gain. Instead of paying $476,000 in federal capital gains tax (assuming 23.8% rate), he invests the full $2,000,000 in a Qualified Opportunity Zone fund that's developing affordable housing in an up-and-coming area. He defers the tax on his original gain until 2029, and if he holds the investment for 10 years, any appreciation on the $2,000,000 investment will be tax-free. Assuming a 7% annual return, his investment could grow to nearly $4,000,000 tax-free, while also supporting community development.