As this year draws to a close, you may be looking closely at your accounts and considering your options in order to start 2019 in the best possible light. Whether you are searching for tax breaks, investment opportunities, or other financial benefits, a careful review of all your options is crucial.
One such option for lowering your losses this year is called tax-loss harvesting. Essentially, if you have an investment that has lost money during the year, you can sell it at a loss and then use that loss to offset your gains. By “harvesting” this loss, you may also be able to lower your tax rates at year end. This transaction is generally the most effective with short-term capital gains, which are taxed at a higher rate compared to long-term gains (those that are held longer than one year).
There are restrictions, however, that you should be aware of before making any big decisions. First, this investment is generally only for taxable accounts and does not usually apply to IRAs or 401ks. Second, it’s important to remember the wash-sale rule: Once you sell the stock, you cannot repurchase it for a minimum of 30 days—similar stocks are OK to purchase, but not substantially identical ones. Third, there is a process to apply short- or long-term gains to losses, so make sure time is not a big factor. Remember to follow all IRS rules and regulations when going through the process.
Overall, tax-loss harvesting may be a good option that allows you to preserve capital and reallocate your portfolio. Although tax-loss harvesting is often done in December, it is an available option throughout the year. A financial advisor will guide you through the process every step of the way to ensure all i’s are dotted and t’s are crossed.
If you are interested in learning more, contact one of our financial advisors today.
