As you wrap up 2022 and look ahead to the new year, consider how to get an early start on understanding your finances and how to manage your tax liability, especially if you experienced any changes in equity compensation or made or sold an investment.
In this article, we discuss why you should:
- Create a complete picture of your personal net worth
- Find the right strategy for your equity holdings
- Understand the tax implications associated with crypto assets
- Plan for life milestones that will impact your future tax liability
- Develop a relationship with a trusted tax professional
1. Create a complete picture of your personal net worth
Gone are the days of only keeping your money in traditional banking, savings, and brokerage accounts — with compensation in the form of equity and digital assets such as crypto, it can be hard to keep track of all of your disparate accounts, assets, and investments.
We’ve created the Harness Wealth Balance Sheet to help you see everything in one place including any employee equity as part of your net worth. And if you prefer, you can also receive a weekly email update that includes a snapshot of any balance changes instead of having to periodically log in to your account. Armed with this information, you’ll be better equipped to work with a tax or financial advisor who can answer important questions about how to make decisions about your investments. Read more about how the Balance Sheet can help you see the big picture.
2. Find the right strategy for your equity holdings
2022 was a big year for mobility and volatility in the job market. You may have been personally impacted by a recent layoff or transitioned to a role at a new organization, with a significant portion of your compensation in the form of company equity. What should you do with your options if you have a limited window to exercise them? Should you exercise some or all of your options? All of these decisions will impact your tax liability and it may be worthwhile to speak to an expert who can guide you through the process.
“What should you do with your options if you have a limited window to exercise them? Should you exercise some or all of your options?”
If you have questions about the potential value of your equity or the tax implications of exercising, you can use our free Equity Tax Insights tools to help navigate your choices or find answers to common questions about equity at our blog.
3. Understand the tax implications associated with crypto assets
Did you invest in crypto, decentralized finance (DeFi), or non-fungible tokens (NFTs) this year? One of the most common misconceptions about these assets is that you don’t need to pay taxes on profits from investing, trading, farming, staking or mining them, because they’re not regulated as securities.
In the United States, all profits made from the purchases and sales of crypto assets such as Bitcoin, Ethereum and NFTs are subject to capital gains taxes (including airdrops). This is because they are treated as property (much like stocks, real estate, or gold). But with any asset, there are ways to optimize your tax liability, and crypto is no exception.
“With any asset there are ways to optimize your tax liability, and crypto is no exception.”
Harness Wealth’s CPAs can provide expert advice if you’ve experienced profits (or losses) via any crypto asset related activities this year and help you plan ahead for future years as well if crypto assets make up a sizable chunk of your assets.
4. Plan for life milestones that will impact your future tax liability
Whether you’re looking to get married, start a family, or planning for your estate, it makes good sense to take a closer look at your financial situation and how that might change after a big life event. You and your partner may want to change your joint financial situation to accommodate future medical expenses, insurance coverage, or purchasing a home. If you decide to merge finances, whether partially or fully, it’s important to understand the legal and tax implications of your respective debts and investments. An expert tax advisor can help answer questions about how to optimize your strategy.
In any case, it’s worthwhile to evaluate your retirement savings strategy and optimize according to your risk tolerance and lower tax burden. Consider partnering with a financial planning or wealth management professional to discuss your goals and current lifestyle to balance short-term and long-term financial wellness.
5. Develop a relationship with a trusted professional who can provide personalized advice ahead of filing your taxes
Finally, you don’t have to navigate all of these things alone. A tax advisor is a good partner to have on your team in developing a personalized strategy. However, they are in high demand so you want to ensure that you find an advisor before the busy season starts in January. Don’t wait until April to find a CPA who can support you in maximizing your tax returns.
You don’t have to fully commit to a tax advisor right away. Harness Tax provides a virtual 1-on-1 introductory session to answer key questions about equity and provide guidance on your unique tax situation.
It’s never too early to start building a better financial future for yourself.
Harness Wealth can provide you with the right amount of support for your tax and financial planning needs. Whether you’re a personal finance DIY-er and want a centralized dashboard to track all of your assets and investments or you’re looking for more personalized tax insights and recommendations, we can provide you with the right tools or connect you with live, vetted advisors who can provide more holistic, bespoke advice.