Bear Market Tax Planning Strategies to Discuss with Advisors

Actions you take between now and the end of the year to reduce your tax obligations, as well as your 2023 tax planning, depend on your current and projected future financial situation. In a volatile market like we are in now, it makes sense to work with your tax advisor for specific guidance. 

Tax Planning Actions

This time last year, we outlined five key actions you can take to proactively plan for year-end tax strategies. There are some tax planning strategies that can be helpful during a bear market.

  • Loss harvesting involves the selling of investments that have lost value to offset capital gains, thus leading to lower taxes or taxable income. Remember, bonds and other fixed-income assets can be used for tax-loss harvesting, not just stocks.
  • Taking capital gains now to hedge against potential future tax increases or an even more volatile market next year. 
  • Converting a traditional IRA to a Roth IRA for tax-free withdrawals in retirement. While you have to pay taxes now to convert funds from the traditional IRA to a Roth IRA, you will be able to take advantage of potentially lower values in your IRA, and you will not be subject to tax on qualified withdrawals from your Roth IRA.
  • Gifting strategies to reduce estate taxes and income taxes. For example, opening a donor-advised fund to organize charitable gifting, particularly if you fund it with appreciated stock, can help reduce tax obligations if you had otherwise sold the stock. 
  • Using health and dependent care spending accounts (HSA) to plan for future health or retirement expenses and minimize future taxes. Leveraging the many tax advantages HSAs offer can bolster retirement savings, as investing for the long-term when asset prices are low can pay off down the road.

New Tax Credits

There are new energy tax credits that you might be able to take advantage of now or plan for 2023:

  • Tax Credit for Solar Panels. If you are considering converting your primary home energy source to solar, now might be the time to do it. The Inflation Reduction Act, signed into law in August, expanded the Federal Tax Credit for Solar Photovoltaics to 30% until 2033. Do not worry; if you installed a solar system in 2022, the tax credit increased from 22% to 30% (provided you have not already processed the claim).
  • Tax Credit for Electric Vehicles. The Inflation Reduction act also included the Clean Vehicle Credit, which modified the requirements for tax credits for Electric Vehicles (EVs); starting on August 17, 2022, EVs will have to have a final assembly in North America to qualify for the tax credit. Beginning on January 1, 2023, the former sales cap on EVs will no longer be applicable (meaning certain cars that did not qualify due to the sales cap will now qualify for the tax credit. The credit will be broken into two components (critical minerals and battery components), with each credit being $3,750. A vehicle may qualify for one or both credits. In addition, there is a cap on the MSRP of vehicles that qualify for the credit; income thresholds also limit the credit for taxpayers. Finally, some used EVs will qualify for a credit of up to $4,000.
  • Tax Credit for Energy Efficient Home Improvements. A number of small home improvement projects could be eligible for a tax credit under the Inflation Reduction Act, including applicable doors, windows, and heat pumps. Note: roofs are no longer eligible for a tax credit.

Another tax implication of the Inflation Reduction Act is the funding of $79 billion over the next ten years for the IRS. This could mean additional IRS workers and better systems, which could lead to more scrutiny of tax filings. Ensuring your taxes are prepared correctly could be your best bet in year-end tax planning. 

The tax attorneys at Sassoon Cymrot Law, LLC advise clients on a range of individual and business tax issues. We’re here to help clients prepare for both short-term and long-term tax liabilities, creating strategies that minimize taxes and support your larger financial goals. To get the help you need for your 2022 tax filings and beyond, contact us today.

Scott Wittlin is a business and tax attorney with significant experience in advising businesses and the business owner. Scott works with business owners in addressing the complicated tax decisions they face in both their succession and estate planning. He works with his clients to maximize their tax benefits in all facets of their business and personal lives. He also assists families with probate and estate administration.
With almost fifty years of experience, Steve has dealt with both federal and state tax matters; including representing Taxpayers representation before administrative.

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Sassoon Cymrot Law and Grossman & Associates have joined together into one firm under the Sassoon Cymrot Law name effective May 1, 2021.