Tax Loss Harvesting While Avoiding Wash Rules?
Tax Loss Harvesting Advanced Methods
In last weeks post we were talking about things you should do around the end of the year for your finances. Too often people wait until the end of December and don’t give themselves enough time to fix any issues they find.
It is a lot easier to adjust contributions or find uses for funds if you do your check-up in October than it is to do it between Christmas and NYE.
At a minimum, if you wait till December you may be making moves at the same time everyone else who waited till December is also doing the same thing - giving you worse execution.
This is particularly true when it comes to tax-loss harvesting.
Most people wait till December to start harvesting losses. The result is loser stocks tend to lose a little extra hard in December.
In news that should shock no one, doing the opposite (or at least something different) than most people tends to lead to better results.
Since we brought up tax-loss harvesting last week, and as we are going into the end of the year, it seemed like a good segue into talking about some of the cool tricks to get your losses to offset gains while keeping exposure (if you want) and avoiding wash rules.
This post will go from basic to more advanced strategies to have your cake and eat it too…or errmmm… i guess “take your offsets to gains and keep your exposure to the underlying too” is more like it.
In general, tax-loss harvesting is when you sell a security to realize a loss to offset gains in your portfolio. If you have $5k in realized capital gains, and it is taxed at 25%, you will pay $1,250 in taxes on those gains. But if you have a stock that has a $5k unrealized loss that you sell, your net gain on the year is $0 so you avoid paying those taxes.
If you are new to tax loss harvesting, this post will walk through some basics on how to save on taxes.
If you are experienced at tax loss harvesting, this post will provide some higher level strategies that you may not be familiar with or thought of.