by Darren Fox
If your stock portfolio is down this year, its not all bad news. Investors can deduct up to -$3000 of losses against their income each year. This is in addition to taking Losses to offset Gains. Generating a year-end 1099 with -$3000 net loss is optimal for moguls seeking a tax break.
Each year is different. This year may have produced a few more opportunities to take advantage of losses.
Whether a Stock Portfolio is Up or Down, you can shoot to close out the year with -$3000 of “realized” capital losses. How? You can sell-off holdings in the red to accomplish this. Yes, even if your account is Up, it’s possible to make it look negative on paper for the year.
For this objective, sometimes its smart to SELL what’s down in December to not only offset Gains made that year, but also offset income. Losses exceeding -$3000 can be rolled forward 5-years.
This is a popular way to manage yearly Capital Gains and Losses, known as ‘Tax Loss Harvesting‘. Its simply a method of selling stocks at a Loss to offset tax liability on Gains. There is no limit to the amount of Losses you can take to offset Gains. However a net-loss for the year can only be used to reduce income tax liability up to -$3000 (net losses exceeding -$3000 can be rolled forward up to 5-years).
If properly applied, ‘Tax Loss Harvesting’ can help save money on taxes and assist in re-balancing a portfolio.
The IRS restricts investors from improperly taking advantage of Tax Loss Harvesting with the ‘Wash Sale Rule‘. A “wash-sale” negates the recognition of the tax loss. This occurs if an Investor attempts to re-purchase the same stock within 30-days.
In other words, you can’t just Sell a stock to record a loss and buy it right back. To count the loss on paper, you also have to avoid the stock for 30-days after the sale.
Implementation of ‘Tax Loss Harvesting’ and ‘Wash Sales’ are not a concern for IRAs, ESAs, and other tax-sheltered accounts. These rules apply to Taxable investment accounts only.
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Investment advisory services are offered through Avenue Retirement Services, LLC, a Texas domiciled registered investment advisor. Main Office: 2831 Eldorado Pkwy Ste 103-148, Frisco, TX 75034. This communication is not to be directly or indirectly interpreted as a solicitation of investment advisory services to residents of another jurisdiction unless otherwise permitted. Consult your CPA for specific tax advice. Nothing in this document is intended as legal, accounting, or tax advice, and is for informational purposes only.
This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Past performance does not guarantee future results.