Tax Harvesting: How many people know they can do this?
I met with a client last week whom I respect deeply on both a personal and professional level: he has had a highly successful career building a firm working with individuals, families and businesses as a Certified Public Accountant, or CPA.
We had put some accounts in place a couple of years ago with growth of the accounts as a primary objective, and tax harvesting as a secondary objective. Tax harvesting can be done in non-retirement accounts. Essentially, we can sell individual positions of the investments such as stocks, bonds or exchange traded funds, in an account to purposefully book a tax loss or a tax gain, then reinvest the money in another investment within the account, as long as we abide by the wash-sale rule. The wash-sale rule disallows one from taking a tax deduction if they sell an investment position at a loss and then repurchase the same investment or a substantially similar investment within 30 days of the sale transaction that booked the loss.
Why would we want to book tax losses? Because they can be used to offset the realized capital gains tax consequences from other investments. I’ve done this for years with clients anticipating the sale of real estate, a business, or a highly appreciated stock position, to work toward neutralizing the capital gains that are realized from those selling events.
My client and I reviewed in detail, the performance of the accounts, the selling and buying activity within the accounts, both the realized and unrealized capital gains from the accounts, and the offsetting of realized capital gains taxes we’d accomplished. He was happy on all levels. As we ended the appointment, the “light bulb” moment occurred in my mind that sparks an article. As we discussed the significant benefit this tax harvesting strategy produced for him over the past few years, I pondered the power of tax harvesting and couldn’t help but wonder how many people know they can do this.
LouAnn Schulfer of Schulfer & Associates, LLC Wealth Management can be reached at (715) 343-9600 or louann.schulfer@lpl.com. www.SchulferAndAssociates.com
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