Five Year-End Portfolio Planning Conversations

12/13/2018 - By Chris Stennett, CFP®

It’s December, and we’re deep into the Holiday Season. This is also the time of year when many CPAs and financial advisors sit down with their clients to discuss key decisions that impact the current tax year. I want to highlight some of the conversations we’re having with our clients. So, before we say goodbye to 2018 and hello to 2019, here are a few conversations that you might want to have with your financial team. Keep in mind, these strategies all have nuances too deep to cover in this article. Please only execute them with the advice of a knowledgeable professional.

1. Loss Realization

First, let’s make sure we’re on the same page. An individual’s tax profile consists of many different components including capital gains and losses. These gains and losses are most commonly found in a taxable investment account, so if you only have IRAs and/or 401(k)s, this probably doesn’t apply to you. Many mutual fund owners receive capital gains distributions in December, which flow through to your personal tax return as taxable income. You might also have capital gains if you sold an investment at a higher price than what you purchased it for. Capital gains and losses are further separated into Short Term (held for less than 1 year) and Long Term (held for more than 1 year) categories. 

The term “loss realization” means selling an investment for a price lower than you paid for it. No one likes to lose money in their investment accounts, especially your financial advisor. However, there is a key tax advantage to selling some losing positions – losses offset gains. If we can realize some losses, we can lessen the tax impact of capital gains on your income taxes. At Saltmarsh Financial Advisors, we like to have a good understanding of a client’s tax profile. That way, if we know they are going to generate capital gains within their portfolio, we can discuss the potential advantages of offsetting those gains with capital losses.

2. Gain Recognitions

Taking the above idea further, some clients can actually see a benefit by selling winning positions to “realize” the gains. Individual’s tax brackets change based upon the amount of income they receive each year. Some years individuals might make less money and thus, be in a lower tax bracket. The idea of gain recognition applies to those individuals in the lowest tax brackets for a given year. 

If an individual is in the bottom 2 tax brackets, their Capital Gains are taxed at a 0% rate.  To take advantage of this tax rate, an investor could sell positions at a gain, pay 0% on the gain, and then immediately re-invest those dollars back into the exact same investment. This effectively creates a “step-up” in their cost basis. As time passes, that individual may move up in the tax brackets causing them to pay a higher rate in capital gains. This strategy would allow that person to ultimately save money on future taxes.

3. Traditional IRA or Roth IRA Contributions

The IRS has placed limitations on who can contribute to these accounts and how much can be contributed. The year is almost over so most income tax events are known. Advisors can get a good understanding of a client’s tax profile by working with a CPA and determining if they qualify for IRA contributions. We can then take this knowledge and help our clients understand the benefits of making contributions to these retirement accounts. Technically, a client can contribute to an IRA up until the tax filing deadline (commonly April 15th of the following year). But, if we can get a head start on planning for the contribution, we can invest money sooner and give it the opportunity to grow for longer. 

4. Charitable Giving

I spoke about this in last month’s article, but it should be noted again that charitable giving can have a positive impact on a person’s tax profile. Working with your CPA, we can calculate the net impact of making a charitable contribution on your income taxes. For some people, they might be able to push themselves into a lower tax-bracket or decrease their tax liability by claiming a higher deduction. If you’re already charitably inclined, work with your financial team to discuss the giving strategies available and determine if they can positively impact your taxes.

5. HSA Contributions

The end of the year also marks the beginning of open enrollment for employer benefits. One of those benefits worth looking at is a Health Savings Account (HSA). HSAs are accounts where an individual can allocate pre-tax money from their paycheck to use for future qualified medical expenses. Qualified medical expenses include deductibles, dental services, vision care, prescription drugs, co-pays, psychiatric treatments, and other qualified medical expenses not covered by a health insurance plan. These accounts earn interest tax-free and can be used to pay for medical expenses tax-free. If they aren’t used each year, the balance is rolled over to the next year and can be transferred if you change jobs.


If you turned 70.5 or older this year and have retirement accounts, then you’ll need to take Required Minimum Distributions. The end of the year is the last time you can take your required distribution without facing a heavy tax penalty. Your financial institution can help you calculate what you need to distribute, so make sure you’re working with your financial team to ensure you’ve satisfied your requirement before the year is over.

At Saltmarsh Financial Advisors, our goal is to help you understand key information and to guide you in making better financial decisions. If you feel that some of these conversations apply to you and want to discuss them further, please do not hesitate to contact us, and a member of our team will reach out to you. 


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