2. Carry Your Losses Forward
Another strategy to consider is carrying over capital losses from one year to offset capital gains in another year. 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. If you have additional losses that aren’t captured, carry those capital losses forward next year. There is no limit to how long you can carry capital losses forward into the future across your lifetime.
3. Minimize Taxes on Foreign Investments
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 you must do so within the statute of limitations. In addition, certain foreign tax amounts may be credited against United States federal income taxes, which should be discussed with your tax advisor. Talk to your Morgan Stanley Financial Advisor about foreign tax reclaim services.
4. Maximize Your Health Savings Account Savings
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, if allowed by your employer, may be made by pre-tax salary reduction contributions by your employer. Any earnings in HSA accounts generally grow income tax-free, and distributions may be income tax-free if used to pay for qualified medical expenses like medication, doctor’s fees and X-Rays. State and local tax treatment may vary.
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 15, 2024 for most individual taxpayers—to contribute funds to an HSA account for the 2023 tax year. For 2023, if your HDHP covers only yourself, you can generally contribute up to $3,850 to an HSA. If you have family HDHP coverage, you can generally contribute up to $7,750 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 2024, contribution limits rise to $4,150 for an HSA for individual coverage or up to $8,300 for family coverage. If you have more than one HSA account, your total contributions to all HSA accounts cannot be more than these limits.
5. Take Advantage of Higher Estate and Gift Tax Exemption
The 2023 federal estate and gift tax exemption is $12.92 million per individual or $25.84 million for a married couple. In 2024, that exemption rises to $13.61 million per individual or $27.22 million for married couples. 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 from 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.