It is hard to believe that Fall and the pumpkin harvest have begun. The next thing you know, it will be tax season, and a different harvest will begin. As we approach the end of 2022, you will want to review your investment account(s) with your financial advisor to find the best solutions to avoid surprises. If the opportunity arises, tax-loss harvesting could be for you. Tax solutions equate to looking for the perfect pumpkin in the patch, and you may need to look through several pumpkins before you find the one that meets your needs. Your financial advisor will look for a solution, so you walk away with YOUR perfect "pumpkin" at tax time.
What is Tax-Loss Harvesting?
Tax-loss harvesting is when you sell off investments that have taken a loss to offset capital gains tax from the sale of assets with a profit for that given year and can only be done with non-retirement accounts.
Why would I need Tax-Loss Harvesting?
If you would like to avoid paying higher taxes on the capital gains from your profitable investments, you would implement tax-loss harvesting.
When is the best time to use Tax-Loss Harvesting?
Generally, you would wait until the last quarter of the year to review your portfolio to determine whether tax-loss harvesting would benefit that federal tax year.
Who can help me determine whether I would need Tax-Loss Harvesting?
It would be best if you met with your financial advisor to review your accounts. They will develop the most strategic plan to help you avoid any unnecessary taxes at tax time.
Tax-loss harvesting is a great tool to help you save on taxes. You can deduct up to $3000 in capital gains losses per tax year. If you have a loss of more than $3000, say $5000, you can carry over the remaining $2000 to the next tax year.
The IRS has implemented rules that investors must follow to avoid penalties; this is where Dixon Financial Group comes in. We have the knowledge to guide you through the twists and turns of IRS rules and will provide you with the best tax-saving strategies.
Tax-loss harvesting does change the balance of your portfolio. You must correct the balance by purchasing new assets (using the funds from the assets sold at a loss), but you must beware of the "wash-sale rule." You cannot purchase an asset that is "basically identical" to the one sold before 30 days. If done, you will not be able to write off the loss.
Remember that when using tax-loss harvesting, it does change your portfolio, but the pros can outweigh the cons. Saving at tax time can be a more significant "pro" than the temporary change in your portfolio, which can be perceived as a "con."
We are here to answer any questions you may have. Call the office to schedule an end-of-the-year review to determine whether you would benefit from tax-loss harvesting.
David S Dixon, CFP®