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Year-End Strategies - Tax Loss Harvesting Thumbnail

Year-End Strategies - Tax Loss Harvesting

Don’t “Ostrich”!

Year-End Strategies, Part 1: Tax Loss Harvesting

With 2022 being a challenging year in the market, many of us look at the overabundance of red on our statements and ostrich, put our heads in the sand. Ignoring the red could prevent you from taking advantage of a potentially valuable strategy known as Tax Loss Harvesting (TLH). TLH is deliberately selling a position at a loss and using the loss to offset current or future capital gains you may realize. If your capital losses exceed your capital gains up to $3,000 of your losses can be used to offset your taxable income. If you have capital losses remaining, these losses can be harvested and carried forward without expiration!

Are you suggesting that I sell something that lost money in my account?

In certain cases, yes, I am.  Too many of us wait to break even on investments, whether that investment is good or bad.  I often refer to this as catching a falling knife or anchoring. The academics in Behavioral Finance refer to this as cognitive error.  However, in the case of tax loss harvesting, getting back into the investment you sold or replacing the investment with an “IRS Compliant Replacement Security”, or one exhibiting similar traits, is an option.  Considering and implementing TLH in your taxable accounts could keep more if your money in your pocket and put less in Uncle Sam’s.  (Check out Part 2: Wash Sale)  

3 Key Points:

  • TLH is when one deliberately sells an investment at a loss with the intention of offsetting capital gains today or in the future.
  • TLH can be used the year taken to offset current capital gains, and if losses remain up to $3,000 can be used to offset your taxable income.
  • Additional losses harvested are carried forward without expiration.
  • TLH should be discussed with your Financial Professional to determine the most prudent strategy for your situation.

What should I do next? Don’t wait too long, you have until December 31st!

  • Do you have a taxable investment account?  If no, then tax loss harvesting is not for you at this time!
  • Are there losses in your account?
  • Reach out to your Financial Professional, or a member of  Sandbox Financial Partners, for a FREE review your portfolio and to explore if TLH makes sense for you!

If you have additional questions, please reach out to me at rachael@sandboxfp.com or contact us here today.  Let us help you, so you can Live More and Worry Less!