The tax year may have ended on December 31, but there are still some tax-favorable opportunities that you may be able to take advantage of before tax-day 2024. Consider these six tips as you prepare your U.S. federal income tax returns and plan for future tax seasons.
By maxing out your tax advantaged accounts, if you haven’t done so already, you can potentially reduce your taxable income. Depending on your situation, you may be able to contribute to an Individual Retirement Account (IRA) or a Health Savings Account (HSA) where the deadline for contributions for the 2023 tax year is April 15, 2024 (or April 17, 2024, if you live in Maine or Massachusetts).
To help reduce tax liabilities, offset your capital gains with your capital losses incurred during 2023 or carried over from a prior return. If you have offset all your capital gains and still have capital losses remaining, you can potentially reduce this year’s tax liability even further by applying up to $3,000 ($1,500 if married filing separately) of capital losses to offset your ordinary income.1
If you paid taxes to a foreign country on securities held in your investment accounts and are subject to U.S. federal income tax on the same income, you may be able to take either a credit or an itemized deduction to reclaim them. Taken as a deduction, foreign income taxes reduce your gross income subject to U.S. federal income tax. Taken as a credit, they reduce your U.S. federal income tax liability.
Accounting for equity award transactions throughout the year can produce a myriad of forms and notices needed for tax filing purposes. Some common forms to expect are Form 1099-B if you sold shares received from equity compensation throughout the year and Form 3921 if you exercised Incentive Stock Options (ISOs). You’ll also want to keep an eye out for a Form W-2 if you had a taxable event for many types of equity compensation and Form 3922 if you purchased shares through an Employee Stock Purchase Plan (ESPP).
Year-round active tax management can help you keep more of what you’ve earned. Some strategies you may want to consider are tax-loss harvesting to recognize losses and offset capital gains, tax-aware asset allocation where higher-yield assets are allocated to tax-deferred or tax-exempt accounts and investing in tax-favorable securities that are tax-efficient or exempt from U.S. federal income tax, such as exchange-traded funds or municipal bonds.
As your finances become more complex, so do the requirements for tax reporting. Consider working with a qualified tax professional to file your 2023 tax return and enlisting their help in tax planning throughout the year. Building a tax-advantaged strategy for your investments can be challenging. If you typically work with a Financial Advisor and tax advisor separately, bringing them together on your investment planning could uncover opportunities to help mitigate your overall tax liability.
Navigating tax season can be stressful and the tax treatment of equity compensation is complex. By bringing together your advisory team and implementing tax-efficient investment strategies all year-round, you can help reduce the impact of taxes. Speak to a Morgan Stanley Financial Advisor about tax-smart techniques and strategies to help you prepare today, for the future ahead.
Disclosures:
This material has been prepared for informational purposes only. It does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Morgan Stanley Smith Barney LLC ("Morgan Stanley") recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Morgan Stanley Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
Morgan Stanley Smith Barney LLC ("Morgan Stanley"), its affiliates and Morgan Stanley Financial Advisors or Private Wealth Advisors do not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for legal matters.
Morgan Stanley Smith Barney LLC is not implying an affiliation, sponsorship, endorsement with/of the third party or that any monitoring is being done by Morgan Stanley Smith Barney LLC ("Morgan Stanley") of any information contained within the website. Morgan Stanley is not responsible for the information contained on the third-party website or the use of or inability to use such site. Nor do we guarantee their accuracy or completeness.
© 2024 Morgan Stanley Smith Barney LLC. Member SIPC.
CRC#5520000 (03/2023)