Steps that May Reduce Taxes on Your Income and Portfolio

Achieving your investment goals isn’t just about maximizing returns. Mitigating tax liabilities in your portfolio can also play a key role in helping you build wealth over the long run. As you review your income and portfolio, consider these steps: 

Work with your Morgan Stanley Financial Advisor to consider a tax-planning move known as tax-loss harvesting. “Harvesting” your unrealized investment losses allows you to offset federal income taxes on gains up to $3,000  of your ordinary income.  Be sure to look at all sources of income, including businesses, outside sales such as personal residences, and private partnerships. If you wish to maintain similar portfolio exposure while avoiding a wash sale (which would disallow the current use of the loss), you can sell the original holding, realize the loss, then buy back the same security after a minimum of 31 days. If you have a Select UMA account with Morgan Stanley, you can work with your Financial Advisor to access year-round Tax Management Services.  

This strategy can help if, for example, you want to diversify a concentrated position in your portfolio. Using Morgan Stanley’s Total Tax 365 approach, your Financial Advisor can help you whittle down any concentrated positions over time, “harvesting” any losses year-round to offset capital gains and allowing you to re-invest with broader diversification.

Keep track of capital losses carried over from prior years. You can offset this year’s capital gains with a prior year’s unused capital losses. If you have offset all your capital gains and still have capital losses remaining, you can potentially apply up to $3,000 of capital losses to offset your ordinary income, thereby further reducing this year’s tax liability. Still have capital losses left? Carry those capital losses forward for potential application against future capital gains. There is no limit to how long you can carry capital losses forward into the future across your lifetime.

Do you hold international securities in your investment accounts? Investors holding international securities are often subject to withholding taxes by foreign governments on investment income (dividends and interest). If double taxation treaties exist between the country where you reside and where the issuer of the security is based, you may be entitled to reclaim all or some of these foreign taxes, but must do so within the statute of limitations. Talk to your Morgan Stanley Financial Advisor about foreign tax reclaim services.

If you are enrolled in a qualifying high-deductible health plan (HDHP), you may be eligible to contribute to a Health Savings Account (HSA). The funds you contribute to an HSA are generally tax deductible if directly made by you or may be made by pre-tax salary deductions if allowed by your employer. Any earnings grow federal income tax-free, and distributions may be federal income tax-free if used to pay for qualified medical expenses (as defined by the IRS).

HSA funds remain in your account from year-to-year if they aren’t spent, and you retain ownership of the account if you leave your job or switch health plans. You have until your tax filing deadline without extensions (April 18, 2023 for most individual taxpayers) to contribute funds to an HSA account for the 2022 tax year. For 2022, if your HDHP covers only yourself, you can generally contribute up to $3,650 to an HSA. If you have family HDHP coverage, you can generally contribute up to $7,300 to an HSA. There is also a catch-up contribution limit of $1,000 for those who are 55 or older at any time during the calendar year. For the 2023 tax year, you can contribute up to $3,850 to an HSA for individual coverage or up to $7,750 for family coverage. If you have more than one HSA account, your total contributions to all HSA accounts cannot be more than these limits.

The 2023 federal estate and gift tax exemption is $12.92 million per individual or $25.84 million for a married couple. These higher exemption amounts were provisioned for in the 2017 Tax Cuts and Jobs Act and are currently set to expire after December 31, 2025, when they would revert back to the pre-2018 exemption level of $5 million for an individual taxpayer and $10 million for married couples, indexed for inflation from 2010. Clients should consider taking advantage of the higher exemption amounts now with estate planning strategies in anticipation of the sunset. For example, you may want to consider funding an irrevocable trust to use these higher exemption amounts while they are still available. 

With Total Tax 365, your Financial Advisor can integrate tax aware solutions into your investment plan to help you minimize the impact of taxes in your portfolio. In addition, if you have complex tax planning needs, your Morgan Stanley Financial Advisor can connect you to experienced tax professionals at leading U.S.-based providers across the country to help ensure your tax strategy is optimized.

Connect with your Morgan Stanley Financial Advisor to learn more.