Harvesting Tax Losses to Offset Gains
Hey everyone,
Let’s discuss a savvy strategy to manage your investments and reduce your tax burden: Tax Loss Harvesting. This method can help you offset capital gains and reduce your overall taxable income.
What is Tax Loss Harvesting?
Tax Loss Harvesting involves selling investments that have declined in value to offset the capital gains from other investments. This strategy can also offset up to $3,000 of ordinary income per year.
How it Works:
  1. Identify Losses: Review your investment portfolio and identify any investments currently worth less than their purchase price.
  2. Sell to Realize Losses: Sell these investments to realize the capital loss.
  3. Offset Gains: Use these losses to offset capital gains from other investments. If losses exceed gains, you can offset up to $3,000 of ordinary income.
Benefits:
  • Reduce Capital Gains Tax: Lower your tax liability by offsetting gains with losses.
  • Offset Ordinary Income: Any remaining losses can offset up to $3,000 of other income, reducing your taxable income.
Example:
Suppose you have $10,000 in capital gains from selling stocks but also have a stock that has declined by $5,000. By selling the losing stock, you can offset $5,000 of your capital gains, reducing your taxable gain to $5,000. If you have no other gains, you can use the remaining $2,000 loss to offset ordinary income.
Considerations:
  • Wash Sale Rule: Be mindful of the wash sale rule, which disallows the loss if you buy a substantially identical security within 30 days before or after the sale.
Action Steps:
  • Review Portfolio Regularly: Regularly review your investments to identify opportunities for tax loss harvesting.
  • Consult a Professional: Work with a tax advisor or financial planner to optimize your strategy and ensure compliance with tax rules.
Tax loss harvesting can be a powerful way to manage your investment portfolio and reduce your taxes. How have you utilized this strategy? Let’s share our experiences and insights!
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Lance Armour
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Harvesting Tax Losses to Offset Gains
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