How to Handle Tax Planning in a Bear Market

Tax planning can be a critical component of your overall investing strategy. At Royal Legal Solutions, we love finding novel ways to help our investor-clients save tax money. We firmly believe that you can and should find and exploit any possible tax breaks. Below, we’ll explore some ways to save and share the details of some of the methods you can use.

Tax Tactics: When the Stock Market Takes a Hit

The reality is that the stock market will always eventually take a hit. With the lengthy bull run, the market has experienced over the past decade has been a boon for many investors, nothing good lasts forever. The question isn’t if the market will correct. It’s when.

Fortunately, we can be prepared even if we are blindsided by a loss at the moment.

The Tax Swap

If one of your most significant stocks or sectors takes a major blow, your gut instinct might be to cut your losses and pull out of the market. But you can actually keep your money in the market, minimize the damage, and reinvest more wisely by employing a technique known as the tax swap.

To execute a tax swap, simply sell off your poor performers. The tax loss can be used to lower your capital gains or even overall income, while any money from the sales can simply be reinvested back into different funds or stocks. This is a great technique if you’re wanting to stay in the market or your sector for the long haul.

Thoughtful Portfolio Diversification and Research

Yet another essential part of planning for a bear market is ensuring your portfolio is adequately diversified. As real estate investors, many of us think in the long term. Yet time and again, we see investors continue to over-rely on the notoriously unstable stock market.

When plotting future diversification, take the time to evaluate the tax implications of your options. As you explore your choices, take the time to jot down any questions you may have for your tax professionals.

Take Advantage of Retirement Planning Savings Options

Your retirement account can pull double duty by also being a handy tax tool. Selecting the right type of retirement account for you is a personal choice, but regardless of which type you use, max out the annual contribution if you can. This is among the easiest techniques for reducing your taxable income. Padding out your retirement account as much as possible only helps you more in the long term.

We often recommend self-directed accounts with Checkbook Control, like self-directed IRA LLCs and business trusts. But perhaps our favorite tool from a tax perspective is the Solo 401(k). Here are a few of the ways the Solo-K can give you an edge:

  • Pay taxes now or later with traditional deferred or Roth options.
  • Enjoy a Saver’s Credit of up to $2,000 on your return.
  • Exploit high contribution limits.
  • Invest in nontraditional assets including real estate.
  • Ask your advisor about more ways to save on your real estate taxes with your Solo 401K.

And that’s just the beginning. Learn more about the exclusive benefits of the Solo 401(k), or check out more details about our Solo 401(k). We even assist with compliance.

Royal Legal Solutions Can Help You

If you plan to implement new techniques or make changes to your tax planning, get help from a qualified professional. Our attorneys and CPA partners are familiar with real estate tax issues and happy to assist you. We can tackle everything from questions about the taxation of your real estate investments, to retirement account setup, and more. Reach out today to talk to our advisors and schedule your consultation.

Keep more of your money with a Royal Tax Review

Find out about the tax savings strategies that you can implement as a real estate investor or entrepreneur by taking our Tax Discovery quiz. We'll use this information to prepare to have a productive conversation. At the end of the quiz, you'll have an opportunity to schedule your consultation.    TAKE THE TAX DISCOVERY QUIZ

Last Updated: 
April 23, 2019

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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