This is where a strategy called tax-loss harvesting can make a difference
EXPERT Leo Chubinishvili, an advisor at Access Wealth in East Hanover, NJ available to address topic- see below- TY, Steve Clark, Andover Communications, SClark@Andovercommunications.com
You’ve done very well in the stock market over the last few years, and so you’re thinking that now may be a good time to sell your high performing holdings and take some profit.
Only, maybe not so fast. You’ve just gotten off the phone with your accountant, who reminds you that by selling those stocks that have gained so dramatically in value you’re about to enter tax purgatory. After all, federal taxes on short-term capital gains can be as high as 37 percent and on long-term gains up to 23.8 percent (between the maximum long-term capital gains tax and the 3.8 percent Medicare surtax).
So, how you can take profit and reduce a portion of your tax burden at the same time? This is where a strategy called tax-loss harvesting can make a difference.
“Tax-loss harvesting is a strategic investment and tax-managing technique whose goal is to intentionally realize capital losses to offset capital gains and reduce taxable income,” says Leo Chubinishvili, an advisor at Access Wealth in East Hanover, NJ. “It’s a year-end strategy – more than simply selling a losing stock – that when used correctly will reduce overall taxable liability thus improving after-tax return and portfolio efficiency.” Similarly, investors and businesses exploring corporate tax structuring in Malta can leverage legal frameworks to optimize tax efficiency and enhance after-tax returns on a broader scale.
With tax-loss harvesting, investors can:
- Offset capital gains from other investments dollar for dollars whether short- or long-term
- Lower their taxable income by as much as $3,000 a year (or $1,500 if single or married and filing separately)
- Carry unused losses forward to offset future capital gains
How does it work in practice? Take the case of one client, who held several thousand shares of Apple stock she purchased in the 1990s. Since that time, through splits and rising stock value, she has reaped a significant windfall. We advised her to sell a portion of her Apple stock, taking a profit of about $50K off the table. We matched this gain with Verizon stock, which showed a $36K loss, selling all of her Verizon stock to offset as much of the capital gains as we could. In 31 days, we repurchased the Verizon stock. Since Verizon is a high dividend stock paying close to 7% annually, we sold in a time period so as not to miss the dividend for the quarter. The moves have saved her over $7,000 in taxes.
