As the end of the year approaches with just a couple of weeks left, itâs the perfect time to take control of your finances and set yourself up for success in the coming tax season. For W2 nurses, understanding strategies like tax loss harvesting and taking proactive steps now can help you minimize your tax liability and maximize your savings.
What Is Tax Loss Harvesting?
Tax loss harvesting is a strategy that allows you to sell investments at a loss to offset capital gains and potentially reduce your taxable income. Itâs particularly beneficial if you have investments that didnât perform as expected this year.
Hereâs how it works:
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Capital Gains vs. Capital Losses: When you sell an investment at a profit, you incur a capital gain, which is taxable. Selling an investment at a loss creates a capital loss, which can offset those gains.
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Offsetting Ordinary Income: If your losses exceed your gains, you can use up to $3,000 of those losses to offset ordinary income. Any unused losses can be carried forward to future tax years.
How to Do Tax Loss Harvesting Step by Step
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Review Your Portfolio: Look at your taxable investment accounts to identify underperforming assets that you might consider selling. For me, I have a few stocks that have underperformed the past years that I decided to sell them off already (this includes $NIO)
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Evaluate Your Gains and Losses: Calculate your realized capital gains for the year. This will give you an idea of how much loss you might need to offset those gains.
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Sell Losing Investments: Sell investments that have decreased in value and that you no longer want to hold. Make sure the losses are "realized" by completing the sale before December 31.
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Avoid the Wash-Sale Rule: The IRS prohibits you from repurchasing the same or a "substantially identical" investment within 30 days before or after the sale. Doing so will disqualify the loss for tax purposes. Be mindful of this when planning your trades.
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Document Everything: Keep detailed records of the transactions, including the purchase and sale dates, amounts, and reasons for selling.
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Work with a Tax Professional (Optional): If youâre new to tax loss harvesting, consulting a financial advisor or tax professional can ensure youâre doing it correctly. You will also be getting forms from your investment brokerage firms that you need to fill taxes with.
Other Year-End Tax Moves for W2 Nurses
Beyond tax loss harvesting, here are some other steps you can take before December 31 to prepare for tax season that I recommend you doing as well (think of it as a checklist)
1. Max Out Retirement Contributions
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401(k): Contribute up to $23,000 for 2024
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IRA: You can contribute up to $7000 to a Traditional or Roth IRA. Contributions to a Traditional IRA may be tax-deductible depending on your income. You also have until April 2025 to max this out.
2. Check Your Withholding
Review your most recent paycheck and ensure youâre withholding the right amount of taxes. Use the IRSâs Tax Withholding Estimator to make adjustments if needed.
3. Use Your FSA Funds
If you have a Flexible Spending Account (FSA) for healthcare or dependent care, make sure to use those funds before the deadline (typically December 31, but some plans allow a grace period or rollover). Remember that the funds in a FSA is use it or lose it, unlike Health Savings Account (HSA)
4. Make Charitable Contributions
Donations to qualified charities are tax-deductible if you itemize your deductions. Be sure to get a receipt for your records.
5. Prepay Certain Expenses
Consider prepaying deductible expenses, such as property taxes or medical bills, to reduce this yearâs taxable income. If you are a business owner like me, reminder that you have to pay your quarterly self-employment taxes.
6. Organize Your Documents
Gather all necessary tax documents, such as W-2s, 1099s, and receipts for deductible expenses. Staying organized now will save you time and stress during tax season. I have this favorite file organizer that is currently on sale right now if you need one.
7. Plan for 2025 Tax Brackets
Keep in mind that marginal tax rates are expected to revert to pre-2017 levels in 2025 unless new legislation is passed. This might affect your overall tax strategy for the coming years. If you want to learn tax brackets for 2025, click here.
The standard deduction has increased to $15,000 next year.
Why These Steps Matter for Nurses
As a W2 nurse, your time is precious, and your income might fluctuate depending on overtime, bonuses, or shifts worked. Proactive planning ensures youâre not overpaying taxes and helps you keep more of your hard-earned money.
By understanding tax strategies like tax loss harvesting and taking action before the year ends, youâre not just preparing for tax seasonâyouâre taking control of your financial future.
3 Stock Market News This Week đ
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Big tech stocks like Tesla (TSLA -8.28%), Broadcom (AVGO -6.91%) and Amazon (AMZN -4.60%) all brought down the Nasdaq on Wednesday. Nasdaq is tech-stocks heavy.
- According to a Bank of America (BAC -3.44%) survey, cash allocations from investors have fallen by 14% in December, which is the largest drop in five years. Historically, this may be a sign for some investors to sell their stocks.
- FOMC meeting summary: The Fed thought it was giving an early present with a 0.25% interest rate cut as many experts predicted - but the markets took it as a lump of coal. The new Federal Funds Rate is now between 4.25 - 4.5%, its lowest level since January 2023.
2 Actions To Do Today đ±
- MONEY: Get your money checklist and goals before the end of the year. If you still want to learn how to invest and learn how stock market investing can help you achieve financial freedom, next week will the last week that it will be available before the end of the year. Sign up here for the FREE INVESTING CLASS.
- LIFE: Take it slow... Today may be the day to slow down on everything. put down your walk, go for a walk. when you're eating, chew your food slowly and savour the flavors of your food. When you are with your family, take the time to present. They said the happiest people are the ones who are present in the moment.
ONE Quote to be inspired
"I was waiting for something extraordinary to happen but as the years wasted on nothing ever did unless I caused it."
Source: Post Office (1971)
Have a great week ahead! Will be taking off next week w/ the newsletter to give you space and time to celebrate with families (i need some for myself), and for you to take your time if you are experiencing grief this season. Holiday hugs from the philippines <3- Ellaine
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