Zenith Wealth Partners

It’s Harvesting Season!

Alli Masoero, CFP® – Zenith Lead Financial Planner 
Not Rich, Yet: A blog talking about finance in a way you’ll actually understand. 

By now, I am sure you have learned I get extremely excited when it comes to tax planning. To me, the tax code is a puzzle, and I get to help clients figure it out!

We like to highlight tax this month, because it’s crunch time for tax planners. Financial advisors are racing to finish tax projections and do any last minute tricks to reduce taxable income. In a year of negative returns like 2022, losses can still be an opportunity (ish!) through tax loss harvesting.

Capital gains are taxed at a different, lower rate. And just like income tax, we like to identify ways to reduce capital gains tax.

Capital losses can be used to offset capital gains. Say you made $2,000 selling your Apple stock and were facing a $2,000 capital gain. You also have a position in Tesla that has a loss of $800. If you sold Tesla, your taxable gain is reduced to $1,200.

You ‘harvested’ your loss in Tesla in order to reduce your capital gains income for the year.

In a second example, you have $10,000 of capital losses this year because of a bad crypto purchase, and the gains throughout the rest of your portfolio are only $2,000. This eliminates your gain and leaves a capital loss of $8,000. 

The IRS allows you to deduct up to $3,000 in capital losses from your ordinary income each year. Therefore, above example, you can only deduct $3,000 in 2022 and the remaining $5,000 can be carried forward indefinitely until used.

Strategic advisors will review your losses and gains to help optimize your tax projection. If we do not use the losses this year, they can be used on future returns. Harvesting losses can supply immediate and future tax relief.

The last factor to consider is avoiding any wash sales. If you are going to sell stock or another investment and you want to buy back into the same investment, you may want to wait 30 days.

This is a thin line to walk on here folks. If you think you could benefit from tax loss harvesting, please consult with someone. Tax planning is my favorite thing to do because it shows clients where my value lies. Don’t play with taxes, ask for help.

 

All written content is for information purposes only. Opinions expressed herein are solely those of Zenith, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

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