Personal Finance

How to turn stock losses into tax savings, and other ways to trim your tax bill

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Review tax withholding

You actually can be very under withheld when you’re working three to four or five different jobs.

John Schultz

partner at Genske, Mulder & Company

And don’t forget to consider whether you’ve paid enough federal tax to cover other sources of income, such as dividends and interest from investments.

“Now you have all this capital gain, this is income that is not going to be subject to withholding,” said Collado, who is a CPA and certified financial planner. “So that difference in the tax you need to make up through either additional withholding or quarterly estimated tax payments.”

You can still adjust your withholding and make an estimated payment for the fourth quarter if you’ve had too little tax withheld. If you’ve had too much tax withheld this year, decreasing your withholding now could increase your take-home pay, giving you the extra cash flow you may need in this inflationary environment, financial advisors say. 

Go online to the “IRS Tax Withholding Estimator” at to see if you’re on track. If you need to make some changes, it will tell you exactly what you need to do to fill out a new Form W-4. Then, submit that form to your employer.

Boost 401(k) contributions

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If you have room in your budget, consider boosting pre-tax retirement savings in a 401(k) or workplace retirement plan. Putting money in these accounts reduces your gross income so you’re paying less tax on your overall income. 

You have until Dec. 31 to make 401(k) plan contributions for 2022. You can stash up to $20,500 this year into your 401(k). Add an extra $6,500 if you’re 50 or older for a total of $27,000.

Even if you don’t have the budget to save nearly that amount, bump up your 401(k) contributions at least enough to get the matching contribution from your employer, financial advisors say. That’s free money, after all.

Weigh Roth IRA conversions

The stock market’s slide since the start of the year gives you a chance to save on taxes in the future using a strategy called “Roth IRA conversions.” Here’s how it works: 

If you have a pretax IRA or individual retirement account, you can convert some or all of those funds to a Roth IRA. By moving the money into a Roth account, you’ll get tax-free growth in the future — but you have to pay taxes upfront on the amount that’s converted. 

The S&P 500 Index is down more than 20% so far this year so you won’t pay as much tax on converting those assets as you would have a few months ago — that’s another part of the tax savings. For example, let’s say you have $50,000 invested in a pretax IRA and it’s now worth $40,000. You’ll save on taxes since you’ll convert $40,000 rather than the original $50,000.

Just be sure you have enough money outside of your IRA to pay those taxes. You don’t want to dip into your retirement accounts to pay for it. 

Consider “tax-loss harvesting”

A common strategy many financial advisors talk about when trying to find a silver lining after a steep slide in stocks is “tax-loss harvesting.”

If you sell an investment at a loss, you can subtract that loss from any capital gains you had from selling other investments. By doing that, you can reduce the taxes you owe. And, those losses or gains can be from stocks, real estate and other types of property.

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