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[Video] Tax Gain/Loss Harvesting

MICHELLE SMALENBERGER, CFP®

Tax Gain/Loss Harvesting

We want to help you think through one last item here at year-end.  Here are some things you can do with your investments to also help with a little bit of tax planning.  Often people can have a dilemma when they look at their investments only to realize that their gains are going to be taxed. It makes people question if they really want gains from their investments. Let’s talk about one thing you can consider to help you keep more of your money.

Here are a couple of examples we’ll walk through together.

  1. Net together Realized Short-Term Capital Gains and Short-Term Capital Losses

Realized Example 1 Example 2
Gains: $10,000 (long-term) $1,000 (long-term)
Losses: -$1,000 (short-term) – $5,000 (short-term)
Total: -$9,000 (long-term) – $4,000 (short-term)

Realized gains or losses are the result of sales you have made throughout the year.

A short-term gain or loss is a sale of a holding you held less than a year.

A long-term gain or loss is a sale of a holding you held longer than a year.

  1.  Now you will net together the short and long term gains and losses together.

Now that you know if you have gains or losses, you can consider changing that outcome by selling any unrealized gains or losses you may still be holding in your portfolio.  Unrealized gains or losses are just investments you continue to hold.  Until you sell those holdings these gains and losses are unrealized.

Once you sell that holding the gain or loss becomes realized and can now be netted with the other gains and losses to change the total of your gains and losses.

You can only deduct up to $3,000 of losses per year.  However, losses can be carried forward indefinitely until they are used up in future years.

Remember, if you sell something at a loss position you have to be careful of the wash-sale rule.  This rule states that if you sell something at a loss you have to wait more than 30 days before buying that position or something similar back again.  This would be in the case where I had a loss in a position I really want to hold for the long term but I want to realize the loss now for tax purposes, then buy it back after the 30 days to set my holding period again.

If we can help you walk through any gains or losses let us know.  This is a year end item that may help you when you complete your taxes.

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