2022 has been a roller coaster for investors like you. If you cashed in on the stock market’s record performance or sold your home for a large profit but have watched your investments slide in the last few months while inflation bites into your budget, don’t worry. There are ways to potentially reduce your tax bill and I’ve made a short video to show you how.
Selling an investment for a gain is great until it comes tax time and Uncle Sam wants his share. But you can lower how much capital gains tax you owe by selling assets for a loss if it makes sense for your overall financial strategy.
This is known as tax loss harvesting, and it’s a strategy savvy investors employ to lower their tax bill. But it can be complicated.
Keep these three things in mind:
First: If you sold an asset that you held for less than a year, you generated short-term capital gains. And these are taxed at higher rates than long-term capital gains.
You’ll want to classify the assets you sold into two buckets: held more than one year and held less than one year. This is important, as I’ll explain next.
Second: When selling assets for a loss to offset your capital gains, you need to keep apples with apples and oranges with oranges. Short-term losses can only be used to offset short-term gains, while long-term losses offset long-term gains.
Third: Don’t sell assets strictly to harvest a tax loss. That’s not always the best move for your financial situation. We can work together to identify the right time to liquidate underperforming investments if and when it makes sense.
If you’re like most people, you want to pay the least amount of tax possible so you can continue saving for your future. Techniques like tax-loss harvesting can help make that possible, but you need to look at your overall financial strategy to see if it makes sense this year.
If you have a question about what I’ve discussed today or you’d like to speak personally about your situation, please set up a meeting with our team at the link below.