The COVID-19 pandemic has been hard on the economy and the stock market. However, there are some smart money moves you may be able to make in our current situation that could benefit you now or later. Georgia Swan, a Tax and Estate Planner with TD Wealth, says, that while every situation is different and you should consider speaking with a professional, there are three strategies you may be able to make now that might be of benefit now or in the future.
It’s not too early to think about next year’s (that would be fiscal 2020) tax filing. Swan says that with the drop in the markets, many people will have the opportunity to report investment losses in 2020, known as tax-loss selling. This is a tax management strategy which may decrease the amount of capital gains tax owed. These losses can be carried back three years and applied to 2019’s income once you file your 2020 income tax return next year or they can be carried forward to future gains. Therefore, if one of your stocks is currently sustaining a loss, you may wish to sell it and apply the capital loss against a capital gain next year or in the future. Swan notes that everyone’s situation is different and that you should have a conversation with a tax or financial professional to see if this strategy is right for you.
Exercising your employee stock options
Employee stock options are often part of an employee’s compensation: they allow the employee to participate in the growth of the value of their company. Generally, the stock options give an employee the option to purchase shares of the company, often with the company matching contributions. The most usual circumstance would see an employee accumulate stock options, allow the shares to grow and then exercise the right to purchase them at the lower option price when the fair market value is higher.
However, Swan says that if you have stock options and the current exercise price is below fair market value, there may be a beneficial tax strategy available to you if you exercise the options now. If you exercise stock options when the fair market value of the shares are at a lower value compared to what they may have been in a good year on the market, it will help keep your income lower, which can be beneficial for tax management purposes. Secondly, since the shares are low when exercised, they will be presumably be higher when the shares are eventually sold, bringing about a higher return. Again, this is beneficial from a tax management point of view because the capital gains on the sale of the shares are taxed more favourably than income.
See whether you are eligible for relief, deductions or other tax credits
Even if you have kept your job, check out the relief programs the government is offering now and in the future as events evolve. If you have run up expenses at home due to changes at work, you may be able to claim some of the expenses of your home work space, and you may be able to qualify for some of the government emergency benefits if your hours have been cut back or if you do lose your job.