June Is A Good Time To Consider Implementing These Four Investing Strategies.

By Nicholas Maurillo, ChFC^®, Private Wealth Advisor, and Michael Rhodes, CEPA^®, Private Wealth Advisor, UBS Wealth Management Americas

Planning long-term investments that aren’t expected to bring returns for a while isn’t always easy, but it’s become more important than ever in today’s fast-moving Florida economy. Below are four practical investing strategies to help with these investments.

In particular, one event that offers the opportunity to use long-term investments to prepare for is an event that we recently passed, Tax Day. Although we’re now past April and the tax-return deadline that month is known for, June is already an opportune time to begin financially preparing for next tax season.

Making strategic investments as part of this preparation can not only help you reduce taxable income, but also help you position yourself more solidly financially amid our state’s rapid growth and rising cost of living. Following the pandemic, Florida has become one of the most popular places in the country to live. But this popularity has come at a cost for residents both new and old.

Consider that Florida had over 1,200 people a day moving here from 2022 to 2023, and during the same period, our state had four of the five fastest-growing metropolitan areas in the country, according to the U.S. Census Bureau. This influx, in addition to other challenges, has contributed to Florida recently reaching the nation’s highest inflation rate, 3.91% as of April, according to data by Moody’s Analytics, as well as the nation’s highest home insurance rates, with an average annual premium of $7,788, according to Insurify, a national insurance agency.

To help you better position yourself for next tax season as well as to better position yourself for some of the financial challenges of the popularity of living in Florida, here are four investing strategies to consider making use of for the rest of this year.

Tax-loss harvesting

One direct investment strategy you can take to reduce your taxable income is called tax-loss harvesting. This allows you to apply losses on certain investments to offset capital gains — and the resulting taxes — on other investments and even to count a portion of unused losses against income.

For example, if you sold a profitable stock, you would owe capital gains taxes when you file your federal return for the year. By using tax-loss harvesting, though, you could manage your tax burden by selling securities like stocks and mutual funds at a loss to offset taxes owed on capital gains elsewhere in your portfolio.

The IRS, however, has important rules for tax-loss harvesting. This is why it’s important to consult with a financial advisor and tax professional to determine which investments to unload and ensure you comply with all applicable laws.

Donating appreciated assets and using donor-advised funds for charitable contributions

Another investment strategy that can offer some tax breaks involves charitable giving. Making strategic choices about donations can help you potentially lessen your taxes and make the most of a contribution.

As one example, donating an appreciated asset, like stock or real estate, instead of cash can enable you to avoid a tax that could be owed if the asset were sold. Just as importantly, if this donation were to a registered 501(c)(3) organization, then the organization you’re donating to wouldn’t owe those taxes either, which means you could donate the full value of the asset instead of a reduced, after-tax amount. Additionally, if you’re over 70 and a half years old, you can contribute up to $100,000 from your retirement accounts directly to registered charities.

Another way to get the most from a donation is through the use of a donor-advised fund. This fund, which you can establish with most 501(c)(3) charities, allows you to make a donation and receive an immediate tax deduction, and then “advise” the sponsoring organization on what investment options you wish to allocate funds for. In this way, the benefit is that you can manage your tax bill and set that money aside for charity, without having to immediately decide exactly where you’ll donate.

529 education savings plans

A third investment strategy to consider for the remainder of this year pertains to saving for your children’s education needs.

You can do this through a tax-advantaged account called a 529 savings plan that can be used to pay for qualified education costs. This versatile savings account allows anyone to contribute to in order to fund a child’s college or some K-12 expenses.

The money in a tax-advantaged college savings account grows on a tax-deferred basis until it is withdrawn, and as long as the money is used for qualified education expenses as defined by the IRS, the withdrawals aren’t subject to either state or federal taxes. These expenses can include those for textbooks, tuition and fees, some room and board costs, and some student loans.

Since tax benefits vary depending on the state, it’s important to work with a financial advisor and tax professional to understand all the details and eligible benefits.

Maximizing retirement account contributions

Finally, retirement savings and investment accounts like 401(k)s and IRAs offer both a powerful tool to save for your retirement, and to reduce your taxable income. Each year you have until Dec. 31 to contribute your maximum to corporate plans like your 401(k) or 403(b) and up to your tax filing date to fund individual retirement accounts (IRAs).

If your company matches a percentage of retirement contributions and you don’t contribute the maximum amount allowed, you could be leaving free money on the table. Even if you don’t hit your annual maximum, contributing as much as possible can help lower your total yearly taxable income.

Many corporate plans also now allow you to make Roth 401(k) contributions, which can allow you to save even more for retirement on an after-tax basis.

It’s not too early

Even though there is almost a whole year before next tax season, now is a perfect time to begin preparing for it. By undertaking the strategies above, you’ll not only better position yourself for taxes next April, you’ll also better position yourself to take on some of the rising financial challenges associated with the popularity of living in the Sunshine State.