Avoid some common financial problems by considering these three points before the new fiscal year begins:
Review your financial plan
No matter how accurate your financial plan was when it was created, things change. Review your plan now and make sure it still addresses your current risk tolerance and needs. Never wrote a plan? Now is the time to get started.
Time your mutual fund purchases
If you are considering buying a mutual fund now, you might want to wait until after January 1. This date is significant because many funds distribute capital gains during December, and no matter how long you’ve held the fund you must pay capital gains tax on the fund’s profits. So you might want to hold off on buying a fund until after the distribution.
When you review your holdings, think about selling your losing stocks/funds to offset the tax you may owe on profitable trades you’ve done this year, a strategy known as ‘tax-loss harvesting.’ But before entering any trade orders, consult with your tax advisor. Depending on your situation, it may be tax-wise to hold onto investments for at least one whole calendar year. If you sell at a profit after 12 months, you’ll pay the lower long-term U.S. capital gains tax on your profits.
If you sell profitable securities after owning them for under a year, you may be liable for the short-term capital gains rate, which the IRS taxes at your regular income tax rate. (Note that Israel and the United States handle capital gains differently. Israel doesn’t distinguish between short-term and long-term capital gains.)
Tax ramifications shouldn’t be the only factor in determining when to sell, but they should certainly be considered. This article is not intended to give specific tax advice, but to alert you to the issues you should discuss with a qualified tax advisor before taking any steps.
For more about what to before the end of the fiscal year, click here Profile-Financial.com/3-financial-moves.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published November 20, 2017. Updated November 2020