Enterprise-Record (Chico)

Counteract­ing capital gains with tax-loss harvesting

- Rick Mootz

Tax-loss harvesting means taking capital losses (selling securities for less than what you initially paid for them) to offset any capital gains you may have.

While this doesn’t get rid of your losses, it can help you manage your tax liability.

Keep in mind that this article is for informatio­nal purposes only and is not a replacemen­t for reallife advice, so make sure to consult your tax or accounting profession­als before implementi­ng any tax strategy that may involve tax-loss harvesting.

How it works

You may deduct up to $3,000 of capital losses in excess of capital gains for your federal tax return each year. (Your tax or accounting profession­al can speak to how capital losses are treated on your state tax return.) Any remaining capital losses above that can be carried forward to potentiall­y offset capital gains in following years.

By taking losses and carrying over the excess losses into the future, you may be able to manage some long-term and shortterm capital gains.

Wash-sale rule

You must watch out for the Internal Revenue Service’s “wash-sale” rule. You can’t claim a loss on a security if you buy the same or a “substantia­lly identical” security within 30 days before or after the sale. (The window is even 61 days wide in some instances.) In other words, you can’t just sell a security to rack up a capital loss and then quickly replace it.

Potential drawbacks

You may not wish to sell assets in a portfolio for tax-loss harvesting, especially if it has been built for the long term. Also, you can only practice taxloss harvesting in taxable accounts; tax-advantaged accounts are ineligible for this strategy.

Year-round strategy

While some investors get to thinking about taxloss harvesting as the year comes to a close, it’s a practice that you can consider all year round.

Richard H Mootz,

CFP® CERTIFIED FINANCIAL PLANNER™ profession­al, is a registered representa­tive of and offers securities through Securities America, Inc., a registered broker/ dealer, member FINRA/ SIPC., advisory services offered through Securities America Advisors,

Inc., A SEC Registered Investment Advisory firm. Mootz Financial Solutions and Securities America Companies are not affiliated. He can be reached at 530877-7007; by email rick@mootzfinan­cial. com or at www. mootzfinan­cialsoluti­ons. com. Securities America and its advisers do not provide tax or legal advice. Please consult with your tax or legal profession­al regarding your individual situation. CA Insurance Number 0C75924.

 ?? ??

Newspapers in English

Newspapers from United States