Markets were up this past week, and we may not have seen full capitulation. Was Bullard right when he said recession fears are overblown? Annex Wealth Management’s Dave Spano and Derek Felske discuss.


Review Your Portfolio For Potential Tax Loss Harvesting Opportunities.

Many may see this year as a challenging year for investors, but some may see opportunities rising. This week’s MoneyDo: review your portfolio for potential tax loss harvesting opportunities.

While almost everyone likes to see the investments in their portfolio go up, investors may experience losses on at least one of their positions at one time or another. While facing a loss on one’s initial investment may hurt, it doesn’t have to affect them negatively on every level. In fact, these losses can be used to help lower one’s tax bill when spring rolls around. The way in which this can be done is through tax-loss harvesting.

Tax-loss harvesting is the concept of selling securities (like stocks, bonds, ETF’s, and mutual funds) at a loss to help offset the taxes one may owe on capital gains from other investments in the portfolio. Not only can tax-loss harvesting help offset capital gains, but, if done properly, can be used to offset taxes on ordinary income.

In a nutshell, the process of tax-loss harvesting goes as follows: one sells an investment that is underperforming and would sell at a realized loss. These realized losses can be used to offset the capital gains that have been realized in other investments (and potentially help offset up to $3,000 of ordinary income). Lastly, the proceeds from the sale can be reinvested into another security that aligns with the investor’s overall strategy and asset allocation.

This last step can be done in a myriad of ways. Oftentimes, investors will move these proceeds into a security similar to the one they sold at a loss. However, one could also rotate these proceeds into a different investment that better suits the overall construction of their portfolio.

There are a couple things to be careful of when considering tax-loss harvesting, though. For starters, tax-loss harvesting can only be done in taxable accounts. Losses cannot be deducted from retirement accounts like IRA’s and 401(k)’s. Additionally, if one still likes the investment they sold at a loss and wants to own it long-term, they can’t sell it and buy it back right away while still realizing those losses.

For example, let’s say you sold ABC Inc. stock for a $5,000 loss today to do some tax-loss harvesting, but you still want to own the stock long-term. To be able to “harvest” this loss and use it to offset capital gains, the IRS says you must wait 30 days before buying it again in any and all of your accounts.

If you were to buy back ABC Inc. stock inside that 30-day window, the wash-sale rule will kick in. This means that the $5000 loss you tried to realize from the original investment would be added back to the cost basis of the shares you just bought back. As a result, you are not allowed to use the $5,000 loss is as a deduction when tax season rolls around.

The first and obvious benefit of tax-loss harvesting is that it can help lower one’s tax bill. However, another added benefit of tax-loss harvesting is that those losses can help an investor reset the cost basis on positions with large gains. If one has large gains in a XYZ Corp. stock, but still wants to own XYZ in the future, they could sell XYZ, realize the gains they have accumulated (knowing that they can be offset by the losses they realized that year), and then immediately buy back XYZ stock (Note that when realizing gains, the wash sale rule does not apply). In doing this, the investor’s cost basis on XYZ is stepped up and can help lower the tax bill for their future self.

Tax loss harvesting is a feasible strategy to consider as you take a holistic look at your entire financial picture. If you have questions about how or when to tax loss harvest, find an advisor you can trust to help.


Annex Wealth Management’s Sarah Kyle and Randy Winkler, CFP® answer several Ask Annex questions:

“With inflation, I’m seeing more about I bonds. What do I need to know?” -Don

“When it comes to pensions, are there rules of thumb when considering single-life benefits or joint and survivor benefits?” -Paula

“I’m only in mutual funds or ETFs, and they seem to fit my needs. I hear and read so much about investors and individual stocks. What am I missing?” -Steven

“Are people putting off retirement because of the recent stock market volatility?” -Anonymous