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Wealth Management Highlights: Tax Loss Harvesting

by Robert W. Tull | May 25, 2020 | Financial Planning, Wealth Management

Hi there, Robin Tull of Tull Financial Group. We want to come to you today to talk about a planning strategy that anyone can use if they invest. It’s called tax loss harvesting, and it’s a nice term that we use when you’ve had a loss in your portfolio. It kind of puts that silver lining on a loss of an investment which we’ve all had from time to time. The idea is that you take an investment going down in value, you sell it at the same time you might sell an investment that’s gone up in value and you offset that to limit your tax liability. The thing to remember about this is that you can also use this to offset some other income of yours – even W2 wages and that’s allowed up to $3000. If you can’t use the entire loss, you can carry that over to future years, so there’s a lot of benefits to tax loss harvesting.

One thing I want to encourage you to do, because many people know that there’s a lot of volatility going on in market right now, is to remain invested. You don’t want to miss out if the market’s gone down in value and you’re expecting it to go back up. One way to do that is to swap to a like-kind investment. Electronically traded funds can help you with that; if you’re in an S&P 500 fund, you might buy a total stock market fund that’s somewhat similar from that standpoint. Let me give you a real time example: people know that Amazon, Apple, and Netflix have gone up in value and they say “hey how can I sell that to trim some of my gains?” One way to do that is to sell some investments that have gone down – maybe bank stocks might be one for example – so you offset those that are going up.

Remember: get with your accountant – it’s very important that you balance long-term to long-term gains and short-term losses to short-term losses. Finally, there is that 30 day wash rule I just want to remind people about. If you own IBM, if you own Amazon, you have to wait 30 days to buy that back or it will be disallowed. Also, this doesn’t work in retirement plans and 401Ks or IRAs – it only works in your taxable accounts.

Please leave some comments if you like. Thanks for watching and please share this video if you think it would be beneficial to others. Have a great week!