61 Days and Counting
You only have 61 days to lower your taxes for 2024. Here are a few moves to consider:
- Tax loss and gain harvesting: If you currently have more realized gains than losses, consider selling some of your losers to offset part of the gains. Although both the broad stock and bond markets are up this year, specific securities may not be. Do you still love that stock and don’t want to sell it? Sell it and then buy it back 31 days later to avoid the wash sale rules. If you don’t want to be out of the sector, buy an ETF representing that sector or another stock in the same sector. Have a bunch of losses and not too many gains? Sell the stock(s) with gains, allowing you to recapture the losses today and then repurchase it tomorrow, which resets your cost basis to a higher value. There is no wash sale rule in this scenario. If you have gains and expect to be in a lower bracket this year than in the future, take advantage of the lower capital gains rate now. Again, you can buy it back the next day if you want.
- Charitable donations: Giving cash gets you a deduction if you itemize but does not help if you use a standard deduction. If you have highly appreciated property, give it to a charity, and you will not pay taxes on the gain. Lastly, if you are over the age of 70 ½, you can make contributions up to $105,000 from your IRA and not have to count the withdrawals as income, but you do not get a deduction. If you are over the age of 73 and you are required to take a minimum distribution (RMD), the charitable contribution from the IRA counts towards the RMD and is not included as income.
- 401(k) contributions: If you can contribute more to your 401(k)retirement plan, consider doing so. Remember to chat with your payroll department as the money must come from your paycheck.
- Retirement accounts: While this next move may cause you to pay more in taxes for this year, it may save you much more in the future. As folks reach retirement age, they often try to avoid drawing money out of their retirement accounts, letting it grow tax-deferred. Sounds like the right thing to do, but often it is not. Let’s say you retire at 65. That means the money will not have to be withdrawn until age 75. (The age goes up in 2030). But, because you left that money in your IRA, the amount you must draw out may force you into a higher tax bracket than you had traditionally before withdrawing. Thus, consider drawing enough out of your IRA each year to keep you in the same tax bracket you are in today and then convert it to a Roth IRA, which will grow tax-free, not tax deferred. This strategy is called a Roth conversion.
- Business: If you own a business, consider postponing your invoices to collect the income next year. You can also pre-pay your expenses. If you need equipment, consider buying it this year to accelerate depreciation. As always, we advise you to talk with your tax advisor.
Tauck Event November 6th
You still have time to join us for Tauck Tours’ presentation of “Travel Beyond the Ordinary Experiences” to discover the world and pursue your travel dreams.
When: Wednesday, November 6th
Where: Belleair Country Club, One Country Club Blvd, Belleair, FL 33756
Belle Terrace Room – 2nd Floor
Time: 5 – 7 pm
Please let us know if you are interested in attending by contacting Donna Eppes at eppes@provise.com or 727-441-9022 ext. 230.
Looking Back at the 3rd Quarter
The third quarter provided a case study of the importance of looking past short-term noise when making long-term investment decisions. A number of economic and political events caused major swings in the market. Politically they began in July, when President Biden announced – via a Tweet – that he was withdrawing from the presidential race,ultimately clearing a path for Vice President Kamala Harris to assume the Democratic Party’s nomination.
Economically, the combination of reports of a cooling job market and rate hikes by the Bank of Japan (BoJ) sent markets spinning. Calls for immediate Fed action were heard daily on the morning business shows. Meanwhile, the BoJ action forced hedge funds, which had borrowed tremendous amounts from Japan at low interest rates to invest in potentially higher earning assets elsewhere, were forced to sell those same assets to cover their loans.
As a result, over the course of days the S&P 500 Stock Index fell 8% from its 2024 high. Volatility spiked and headlines appeared foreboding. While the downturn was swift. Less than two weeks later the market recovered from the decline and was posting new highs. Despite all the turbulence, the third quarter ended on a high note. All major asset classes finished the quarter and remain in positive territory thus far this year. Looking ahead, we can expect more volatility as the U.S. election approaches and we settle into dealing with a new resident in the White House and the formation of a new Congress. Additionally, markets are anticipating a further 25 basis point rate cut from the Federal Reserve. However, risks remain on the horizon. Uncertainty surrounding ongoing conflicts in the Middle East and Ukraine, lingering inflation, and employment pressures can all potentially disrupt markets. Furthermore, the market has been more sensitive to economic data releases, which could contribute to short- and medium-term volatility.
Focusing on Fundamentals
For investors, the third quarter’s events serve as a reminder of the importance of focusing on long-term fundamentals. While external events and market fluctuations can be unsettling, the broader economic outlook remains positive. Earnings are holding steady, GDP growth forecasts are solid, and underlying economic indicators suggest the economy is on firm footing.
In times of uncertainty, investors must stay grounded and remember that markets often experience periods of volatility. Rather than reacting to short-term events, investors should focus on the fundamentals: sound companies with solid earnings, a balanced approach to risk, and a clear investment strategy. As we move into the year’s final quarter, maintaining a long-term perspective will be key to navigating the market’s ups and downs.
Hoarding or Entitled?
Before the pandemic and the inflation that followed, many Baby Boomers thought they were in a good financial position to enjoy their hard-earned retirement. With inflation having made things 25-30% more expensive, many Boomers have an even greater fear of outliving their nest egg. Given healthier lifestyles and longer life expectancies, we plan financially for our clients to live into their 90s and age 100.
As millennials age, they often have a better understanding of their parents’ wealth and may wonder why mom and dad don’t help them out financially. A tension may develop between adult children who view their parents as hoarding money and parents who are prioritizing their lifestyles.[i]
Bridging the communication gap between the generations becomes imperative. As financial planners, we know that money is a private and often infrequent topic. We strongly encourage family meetings and conversations to help facilitate these discussions where each generation can give their input, share their family values and discover the purpose of their money.
Please let us know if we can help start the multi-generational conversation with your family.
i Are Boomers Hoarding Wealth from Their Millennial Children, October 18, 2024, https://www.thinkadvisor.com/2024/10/18/reddit-users-say-boomers-are-hoarding-wealth-the-reality-is-more-complicated/
Smart Financial Moves to Secure Your Future After Divorce
Divorce is emotionally taxing but also laden with financial challenges that can have lasting consequences. Many people make costly mistakes during this time, from tax missteps to overlooking long-term financial security. By being aware of common pitfalls, individuals can make smarter decisions and safeguard their financial future. Here are some of the most frequent mistakes individuals make:
- Failing to understand the long-term implications: When emotions are in overdrive, people focus more on short-term needs and overlook how decisions today will impact their financial future. This could include underestimating future expenses or overestimating income sources after divorce.
- Not considering tax consequences: Different assets have different tax implications. Receiving $100,000 from a retirement account is not the same as getting $100,000 from an after-tax brokerage account.
- Not budgeting for post-divorce life: It’s common for individuals to underestimate the expenses required to maintain their lifestyle post-divorce leading to cash flow issues later.
- Letting emotions drive financial decisions: Making irrational decisions based on anger or fear, such as insisting on keeping the marital home when it may not be affordable or rejecting a reasonable financial settlement out of spite.
- Underestimating the value of professional guidance: Trying to navigate the complexities of a divorce without professional advice, whether it’s from a financial advisor, attorney, or tax professional, can lead to costly mistakes. Having a team that understands both the financial and emotional aspects of divorce can help ensure a better outcome.
Navigating the financial aspects of divorce requires careful planning and attention to detail. By seeking professional guidance from a CFP® professional or CDFA®, attorney, and a tax professional, individuals can safeguard their financial stability and set themselves up for a more secure future.
New Sector Spotlight Series: Consumer Staples
This is the first article of the Sector Spotlight Series, where we will be exploring the eleven different sectors of the stock market, highlighting their characteristics and how they fit within a diversified portfolio. We start by covering the Consumer Staples sector. The consumer staples sector is made up of companies producing or selling essential goods that people use every day, ranging from toothpaste to sunscreen.
Because consumer staples are necessities of life, they are resilient across the economic cycles like a recession. Common brands, such as Walmart (WMT), Proctor & Gamble (PG), and Costco (COST) offer consumer staples. Although consumer staples lack the exciting growth potential of other sectors, such as Information Technology, incorporating them into a portfolio can provide diversification benefits, stability in times of economic uncertainty, and potentially increase your total return.
During recessions, consumers often shift their spending patterns to reduce non-essential purchases. This shift might consist of eating out at fewer restaurants and cooking more meals at home until economic conditions improve. In these circumstances, consumer staples can provide stability in a portfolio by offsetting the losses from other economically sensitive investments, making them the “defensive line” in a portfolio.
In addition, consumer staples’ steady cash flows and stable earnings make them a great recipe for consistent dividend payments. The average dividend yield for companies in the S&P Consumer Staples Select Sector Index is approximately 2.5%, making them attractive for income-driven investors.
Ultimately, consumer staples are a great way to diversify a portfolio because of their stable returns and consistent dividend payments. Look for future Sector Spotlights in the ProVise Perspective$ to expand your knowledge of different stock market sectors.
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