What's in a Year

Calendars are pretty arbitrary, especially when it comes to investing.  I mean, sure, the development of the calendar as a means of tracking the passage of time makes sense, especially when it is based on observable patterns like, say, phases of the moon or positioning of the sun.  But to use January 1st as the starting point for measuring investment performance is meaningless.  I could just as well tell you about your portfolio’s performance since the first new moon after the vernal equinox - you’d probably look at me like I was crazy, but really there’s no difference between the two.  They’re both arbitrary points in the flow of time that are equally irrelevant to you as an investor unless you actually invested your money on that particular day. And since the market is closed on January 1st, that is exactly nobody.  Ever.

There does exist, however, an institution that is so rigidly fixated on this January 1 construct as to make all of us beholden to the turning of the calendar: the IRS.  Time is not continuous to the IRS. It is broken into very distinct, self-contained chunks that run from January 1st to December 31st and have (almost) nothing to do with any other January 1st to December 31st chunk.  Given that structure, December is the perfect time to take a look at your tax situation while you can still do something about it.  By the time April comes around and you file your taxes, you’re basically a historian.

Here are three things to check:

• If you are self-employed or a 1099 contract worker, the IRS expects you to make estimated tax payments as you earn income.  Since there is no tax withholding from your paycheck, if you wait until April to pay all of your taxes, you will owe a penalty.  You can generally avoid this by having made estimated tax payments of 90% of this current year’s taxes or 100% of last year’s taxes, whichever is smaller.
  

• The standard deduction for an individual is now $12,000 instead of $6,350, so a lot of people who used to itemize on Schedule A will now just be taking the standard deduction.  Take a look at where your deductions are for the year - if you’re close to that $12,000, try and find something (a charitable contribution, perhaps?) that you would do next year anyway but could bring forward into this year to get over that hurdle.
  

• Losses in your investment portfolio can be used to offset capital gains or even ordinary income (up to $3k).  The IRS won’t let you take the loss if you put the money back into the same (or substantially the same) security within 30 days, so find something similar (but slightly different!) to park your money in for a month so you can stay invested but also take advantage of the realized loss to lower your tax bill.   
  

Before signing off for the year with a “Happy Christmas to all and to all a good night,” I wanted to take a moment and say thanks for coming along on this Rogue Waves adventure.  I hope you’ve found yourself amused, entertained, and even educated from time to time. There’s a lot to this investing/financial planning thing, and if you ever want more than a monthly article, please do feel free to reach out - russ@atiwealthpartners.com.  I’m looking forward to it. ​