Money moves to make before the end of the year, plus creative ways to gift money

Key Concepts

• Tax Loss Harvesting: Selling investments at a loss to offset capital gains and reduce tax liability.
• Wash Sale Rule: A regulation preventing the claiming of a loss on a security if a substantially identical one is bought within 30 days.
• One Big Beautiful Bill Act: Legislation introducing changes to tax implications, including new savings accounts and tax deductions.
• Trump Accounts: A new type of savings account for children, offering seed money and potential employer contributions.
• SALT Deduction: The deduction for state and local taxes, with an increased limit under the new bill.
• STRIP Method: A personal finance framework for savings, debt management, retirement, investment, and planning.
• High-Yield Savings Account (HYSA): A savings account offering a higher interest rate than traditional savings accounts.
• Certificate of Deposit (CD): A savings account with a fixed interest rate for a fixed term, typically with early withdrawal penalties.
• Custodial Account: An account opened for a minor, managed by an adult until the minor reaches a certain age.
• Market Expectations vs. Data: The concept that stock markets often react to anticipated future events (like Fed rate cuts) rather than current economic data.
• Stock Drivers: Factors influencing stock prices, including fundamentals, news, investor positioning, and future outlook.

Tax Planning and Year-End Actions

Tax Loss Harvesting

• Mechanism: Taxpayers can sell investments that have decreased in value to realize capital losses. These losses can then be used to offset capital gains dollar-for-dollar.
• Example: If an investor has a $10,000 capital gain from selling one stock and a $13,000 capital loss from selling another, the $13,000 loss can cancel out the $10,000 gain, resulting in no capital gains tax.
• Carryforward Provision: Unused capital losses can be carried forward to future tax years.
• Income Deduction: Up to $3,000 of net capital losses can be deducted against ordinary income annually.
• Wash Sale Rule: A critical restriction where selling a security at a loss and repurchasing the same or a "substantially identical" security within 30 days (before or after the sale) disallows the loss claim.
• Workaround (Fidelity Suggestion): Switching from an individual stock to an Exchange Traded Fund (ETF) or mutual fund within the same industry can circumvent the wash sale rule.
• Cryptocurrency Exception: Unlike stocks, cryptocurrency transactions do not have wash sale restrictions, allowing immediate repurchase after selling at a loss.
• Deadline: Losses must be settled before the final market close on December 31st (4 p.m. Eastern) to be recognized for the current tax year.

The One Big Beautiful Bill Act and Tax Changes

• Trump Accounts:
  • Purpose: A new type of savings account for children.
  • Eligibility: Children born between 2025 and 2028 are eligible for a $1,000 seed contribution.
  • Sign-up: While accounts won't be fully operational until July of the following year, sign-up can occur during the upcoming tax season via IRS Form 4547.
  • Pilot Program: A checkbox on Form 4547 allows parents to attest if their child was born after 2025 for this pilot program.
  • Expansion: Michael Dell and his wife are donating $6.25 billion to expand the program to children aged 10 and younger born before 2025. Formal sign-up details are pending.
  • Employer Contributions: The Trump administration is encouraging companies to participate, with employers potentially contributing up to $2,500 annually per employee's Trump Account.
  • Personal Contributions: Individuals can contribute additional funds.
  • Tax Treatment: Contributions are post-tax, and earnings are taxed upon withdrawal. This makes it potentially less advantageous than 529 accounts for education funding, which offer more tax benefits.
• Tax-Free Provisions (in effect until 2028):
  • No Tax on Tips: Deductions of up to $25,000.
  • No Tax on Overtime: Deductions of up to $12,500 per person.
  • New Tax Deduction for Seniors: Intended to offset the lack of tax on Social Security.
  • No Tax on Auto Loan Interest: Deductions of up to $10,000 annually for auto loan interest.
  • Important Note: The "up to" figures are crucial, as income limits and other fine print will determine individual benefits.
  • Gig Worker Inclusion: A last-minute revision included gig workers in the tips provision, though specific implementation details are still being finalized.
  • Complexity: These provisions will appear differently in the tax code, requiring careful planning.
• Individual Tax Rates: The bill's centerpiece was to keep individual tax rates at their current lower levels, preventing an scheduled increase. This simplifies filing as rates remain unchanged.
• SALT Deduction Increase: The State and Local Tax (SALT) deduction limit is increasing from $10,000 per year to $40,000 per year. This is expected to benefit high-income taxpayers in high-tax states like New York, New Jersey, Massachusetts, and California.
• Overall Impact: The administration anticipates these provisions could lead to larger tax refunds for many Americans.
• Increased Complexity: Reuter estimates the tax code is 10-15% more complex this year, necessitating early planning.

Year-End Tax Planning Actions (Expert Advice from Adam Leman, JP Morgan Private Bank)

1. Understand Your Current Financial Standing:
   • Assess your income, losses, deductions, and recognized gains for the year.
   • Estimate your 2025 tax liability.
   • This understanding allows for proactive mitigation of tax liabilities before year-end.
2. Engage with Your Accountant:
   • Reach out to your accountant with several weeks remaining in the year.
   • Discuss your financial situation and potential tax-saving strategies.
3. Tax Loss Harvesting (Reiterated):
   • Crucial for offsetting capital gains, especially in years with positive market performance.
   • Consider systematic tax loss harvesting throughout the year, not just at year-end.
   • Be mindful of the wash sale rule when reinvesting.
4. Charitable Deductions:
   • For High-Income Itemizers: New legislation imposes "haircuts" on charitable giving starting in 2026. This includes a 0.5% floor on adjusted gross income (AGI) for deductions and a roughly 5% reduction on itemized deductions like charitable contributions.
   • Recommendation: Front-load charitable contributions in 2025, as they may be more valuable than in 2026.
   • For Non-Itemizers: A new deduction for charitable contributions up to $1,000 (single filers) or $2,000 (married filing jointly) is effective next year.
5. Retirement Savings:
   • Benefit: Retirement accounts offer tax-deferred growth.
   • Action: Top up retirement contributions before December 31st to maximize the allowed amount and benefit from long-term tax-deferred growth.
   • Younger Workers & Retirees: Both groups can benefit from contributing as much as possible to retirement accounts.

Personal Finance Year-End Checklist (Vivian 2, "Your Rich BFF")

Vivian 2 introduces the STRIP Method as a framework for financial planning:

• S - Savings:
  • Recommendation: Aim for 3-6 months of living expenses in a high-yield savings account. For heads of household, aim for 6-12 months.
  • Benefit: Earns more interest on your savings.
  • High-Yield Savings Account (HYSA) Tip: Vivian recommends SoFi's HYSA and checking account, noting that even funds earmarked for upcoming bills can earn interest. This is particularly important as wallets may feel tighter during the holidays.
• T - Total Debt:
  • Strategy: Rank debts from highest to lowest interest rate.
  • Payment Plan: Make minimum payments on all debts. Allocate any additional funds to pay down the debt with the highest interest rate first (debt avalanche method).
  • Alternative Paydown Options: For overwhelming debt, especially credit card debt (with high APRs of 20-30%), consider personal loans. SoFi offers personal loans that can consolidate debt, allowing for a single, potentially lower-interest repayment.
• R - Retirement:
  • Action: Take advantage of tax-advantaged accounts like 401(k)s, 403(b)s (through employers), Roth IRAs, and Traditional IRAs.
  • Benefit: These accounts offer tax benefits ("little nuggets of candy from the government").
• I - Invest:
  • Recommendation: Invest in broad index funds rather than trying to pick individual stocks.
  • Reasoning: Individual stocks expose investors to excessive company-specific risk. Index funds allow participation in broader market upward momentum.
• P - Plan:
  • Importance: A plan is essential for achieving financial goals and "happily ever after."
  • Action: Use this time for goal setting.

Student Loan Repayments

• Context: The return of federal student loan repayments, potentially a new experience for Gen Z.
• Recommendation:
  • Revisit student loan payment plans.
  • Ensure timely payments.
  • Explore relief programs like income-driven repayment.
  • Consider refinancing if interest rates are too high.
  • Key Advice: Do not avoid or ignore student loan obligations.

Layoffs and Job Searching

• Statistic: As of November, 1.1 million layoffs have occurred year-to-date.
• Advice for Laid-Off Individuals:
  • Leverage Your Network: "Your network is your net worth."
  • Struggle Publicly: Announce your layoff and job search on social media and to your personal network.
  • Benefit: This approach can lead to direct job leads and referrals, placing your resume on a "short stack" compared to general applications.

Creative Ways to Give Money as a Gift

Certificates of Deposit (CDs)

• What it is: A deposit account where a lump sum earns a guaranteed interest rate over a fixed term.
• Benefit: Provides a guaranteed rate, especially valuable when interest rates are falling.
• Early Withdrawal Penalty: Funds must remain deposited for the entire term to avoid penalties.
• Gifting CDs:
  • To Adults: Cannot be directly gifted.
  • To Children: Can be gifted by opening a custodial account, naming the child as beneficiary. Requires child's name, address, and Social Security number. Funds become accessible at age 18-21.
  • Educational Value: Teaches children about saving, compound interest, and banking.

Creative Cash Gift Ideas

• Piggy Bank: A classic gift for children, combining saving education with a toy. Can be filled with cash or gift cards.
• Play-Doh "Dough": Replace the contents of a Play-Doh container with money, wrapped as a gift. A playful pun.
• Money Cake: A cake with cash inserted in plastic sleeves, allowing the recipient to pull out money dramatically. Kits and tutorials are available.
• Money Wreath: A decorative wreath made from bills, incorporating florals and tinsel.
• Money Lei: A lei made by stringing cash. Can be purchased from Hawaiian or Polynesian sellers to show cultural respect.

Ask Yahoo Finance Anything

Why Do Stocks Rise When Economic Data Shows Weakness?

• Market Psychology: Markets trade on expectations, not just current data.
• Fed Policy: Weak economic data can lead investors to anticipate that the Federal Reserve will cut interest rates sooner.
• Impact of Rate Cuts: Lower interest rates mean cheaper borrowing costs, easier financial conditions, and a tendency for asset prices (including stocks) to rise.
• "Bad News is Good News": This phenomenon often occurs when investors are highly focused on monetary policy.

What Drives Stocks?

• Multiple Factors: Stocks are driven by a combination of fundamentals, news, flows/positioning, and future outlook.
• Fundamentals: Company earnings, margins, revenue, and balance sheet strength. Strong fundamentals are essential for long-term investment.
• News: Any surprise that requires investors to re-evaluate risk or opportunity.
• Flows and Positioning: How investors are positioned before an event. If everyone is already bullish on a stock, strong earnings might lead to a muted reaction due to high valuations and existing long positions (e.g., Nvidia).
• Future Outlook: Markets are "discounting machines," constantly looking ahead.
• Short-Term Reactions: Often driven by positioning or policy changes (like Fed rate cuts).