MoneyDo: Evaluate capital gains or losses for the year.
This week’s MoneyDo takes a look at another key component of wealth management – evaluating gains and losses. Don’t let the crush of have-to’s and shopping lists crowd out this critical “MoneyDo.”
There are two good reasons for reviewing your taxable investment accounts to evaluate realizing gains or losses this time of year.
- Consider tax implications as you get ready to file
- Review the risk you are taking in your portfolio and consider adjustments, if needed.
The stock market had a good year this year, which may leave a lot of taxpayers with larger unrealized gains in their portfolios. Some considerations before realizing gains:
- Long term capital gain tax rates are different than ordinary rates. Depending on your situation they may be 0%, 15%, 20%, 23.8%.
- If you are a married individual with taxable income lower than $75,900 your long term capital gains for federal may be taxed at 0%. For single individuals that amount is $37,950. Once your income starts to exceed that, your capital gains over that threshold would start to be taxed at 15% and increasing as income gets higher.
- If also on Medicare, be aware of increasing your income too much and subjecting yourself at a later date a higher monthly premium.
- Also look at rebalancing your portfolio if you are to realize gains. This means looking at your mix of assets and if they are in line with your risk tolerance.
- If you are realizing short term gains your rates would be higher and mirror that of your current ordinary income rates.
Things to consider before realizing losses:
- Do you already have suspended realized losses on your tax return? Therefore you may not receive additional tax savings by realizing more.
- There are wash sale rules which would not allow you to realize a loss if you would buy back the security immediately following the sale. You would need to wait 31 days before buying the security back.
- Would you leave the funds in cash after selling a realizing a loss? Or reinvest in a different type of security.
- You can only take a tax deduction for $3,000 per year of net capital losses, the remaining gets carried forward to future years.
- Your losses can offset other capital gains, to the extend you have gains. Then with the remaining losses you are limited to the $3,000 deduction.
If you’re worried about the tax implication of realizing some gains/losses be sure to review you projected 2017 income before selling.
