The Power of Tax Loss Harvesting!

Let’s face it: No one likes paying taxes. But there is a way to help alleviate your tax bill with a strategy called Tax Loss Harvesting. In our experience, this strategy is underutilized by both individual investors and financial advisors alike. It only works for after-tax investments, not for pre-tax investments (like IRA’s, 401k’s, Roth IRA’s).

Here’s how it works: Throughout the year as your investments are sold, you incur capital gains or losses. I.e., If you bought 1 share of stock A for $10/share and sold it for $12/share, you incur $2 in capital gains. Since this is after-tax money, you must pay taxes on that $2 gain at a capital gains tax rate of either 0%, 15%, or 20% depending on your income. If you add 3-4 zeros to that $2, then your tax bill really starts to add up.

However, if you also own stock B, which was bought for $10/share and sold it for $8/share, you incur $2 in capital losses. If you sold stock B in the same calendar year as stock A, the $2 loss from stock B will offset the $2 gain from stock A. In this example, your net capital gain is $0, and no taxes are due! Additionally, the IRS allows you to use up to $3,000 in capital losses each year to offset up to $3,000 in income. For someone in the 35% tax bracket, that’s $1,050 less taxes owed.

If you aren’t utilizing this strategy with your after-tax investments, you may be missing out on significant tax savings.

Position Wealth has been Tax Loss Harvesting since the day we first opened our doors, and we’re here to help you. Please contact us if you have questions about this powerful tax saving tool.