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Year-End Tax Strategies Unwrapped

Season's Greetings from WAGMI.Tax!




It's the day after Christmas, and with the new year just around the corner, time is of the essence! While the holiday spirit still lingers, let's tackle a not-so-jolly topic: taxes. There are a few swift moves you can make before the year-end to optimize your finances. Here's a rapid-fire guide to last-minute year-end tax saving strategies.

1. Harvest Your Losses

Consider reviewing your investment portfolio for any assets that may have unrealized losses. Capitalizing on these losses can help offset gains elsewhere in your portfolio, potentially reducing your overall tax liability. This strategy is known as tax-loss harvesting and is a smart way to optimize your investments. In crypto particularly, you can take advantage of the wash sale loophole, and simply sell and rebuy your crypto assets to capture the loss without exiting your position. With stocks, you must wait 30 days to rebuy it. If you have an illiquid NFT, you can either burn it, by sending it to the burn wallet address, or sell it to a loss harvester such as harvest.art or unsellablenfts.com, who will buy any and all NFTs for next to nothing, allowing you to realize a loss on your worthless NFT's. If you're not sure how much to loss harvest, you can't really overdo it. Any unused losses will carryforward indefinitely. If you already have tons of losses, maybe you should actually harvest some profits, as harvesting them now will ensure they're taxed at a lower rate, if they're taxed at all.


2. Understand Your Holding Period

The length of time you've held onto your assets can significantly impact the tax rate you'll incur upon selling them. Assets held for more than a year are generally subject to long-term capital gains tax rates, which are often lower than short-term rates. Be mindful of your holding periods and plan your sales strategically to minimize your tax burden.


3. Maximize Contributions to Tax-Deferred Retirement Accounts

Contributions to retirement accounts can provide immediate tax benefits. If eligible, consider maximizing your contributions to traditional IRAs or 401(k)s. Not only will this help secure your financial future, but it can also create valuable deductions on your current tax return.


4. Strategic Purchasing For Business Owners

If you are a business owner and self employed (this includes partners in a partnership or shareholders in an S-Corp), you can reduce your taxable income by making strategic business purchases before the year end. Is it time for a new computer? Maybe you should buy it before January 1st. This has the potential to reduce both income and self employment tax, so it's especially valuable if you were going to make those purchases anyway, so stock up on supplies, grab some new equipment, and if you're cash basis, prepay your software subscriptions and other business expenses.


5. Consider Charitable Contributions

'Tis the season of giving! If you have appreciated assets and a charitable inclination, donating them to a qualified charity can be a tax-efficient way to support a cause you care about. Deducting charitable contributions can be complicated, and sometimes the deduction isn't available. If you want to donate to reduce your tax burden, please reach out and we can discuss your personal tax situation to see if, and how much, you would save by donating.


6. Cash (Flow) is King

A lot of these deductions are great, but they don't always make sense to take advantage of. It doesn't make sense to spend so much money chasing deductions that you can't pay your taxes. Be conscious of your cash flow and liquidity before spending or donating thousands of dollars, as it may save you thousands of dollars, but it will likely not completely eliminate your tax liability. If you expect to owe, and you're worried about coming up with the money, start saving now, and consider setting up a payment plan.


Wrapping Up

As the year comes to a close, taking the time to implement these year-end tax savings strategies can set you on a path to a financially prosperous New Year. At WAGMI.Tax, we're here to guide you through the intricate landscape of taxation and help you make the most of your financial opportunities.


Wishing you a joyous holiday season filled with warmth, laughter, and financial success!


Best regards,

Nicholas Young, CPA




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