With the caveat that there are still 13 trading days remaining in the year, 2025 has been surprisingly — if not shockingly — a decent year for US and global equities. Especially in years with investment gains it can make sense to search for investment losses in taxable investment accounts. Taxable accounts are non-IRA and non-retirement accounts where realizing a capital loss can offset realized capital gains in the current year, OR– capital losses can be carried forward indefinitely to offset future capital gains. A small amount, or a maximum of $3,000, of realized capital losses can be used in a tax year to offset ordinary income.
In the past three trading years, investment losses in equities have been generally difficult to come by — a very good thing! But the “silver lining” of realized losses is they can be used to offset gains now or in the future. Certain Trust accounts limit the use of capital losses. A competent CPA working in conjunction with an attentive financial adviser can provide guidance on this item. Realized losses must be taken by the end of the calendar year, or December 31st.
A couple of other end-of-year actions — one that builds a future tax-free stash but creates current taxable income, and another that could create a tax deduction:
- Before the end of the year, consider converting current pre-tax IRA monies to Roth IRA monies. Converted monies are taxable, but longer-term the converted monies grow tax-free with (key) no required minimum distributions down the line.
- For a tax deduction, if you have NOT maxed out in your Traditional pre-tax 401k for 2025, consider increasing your withholding for the last pay period of the year to make a larger pre-tax contribution. Note, this makes sense for those who do NOT already have sizeable balances (say, over $500,000, depending on age) in the pre-tax 401k.
Enjoy the Christmas and holiday shopping season and please reach out with end of year questions!