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This time of year, you’re thinking about year-end objectives, holidays, family, and good food.

Not taxes. But you should be.

If you wait until April, there isn’t much you can do.

Now is the time to act if you want to be more savvy about your tax bill.

One of the strategies we use for clients is called Tax-Loss-Harvesting.

Tax-Loss-Harvesting is the process of selling positions with gains and then selling positions with losses to help offset taxable gains.

Having a diversified portfolio means we should always have some positions that we made money on (hopefully most) but still a few negative positions we lost money on.

This year has been an excellent year for the market. Some of your holdings are probably way up. 30%, 40%, 50% or more. Sometimes it makes sense to sell, take gains, and reinvest.

But, when you sell a holding that you made money on, your gains turn from unrealized to realized gains.

Now, with your realized gains, you have to deal with taxes.

By selling not only your positive positions but also some of your negative positions (the ones you lost money on) the realized losses work to offset your realized gains and help to reduce the total gain you owe taxes on.

Here’s a quick example.

If you sell stocks with a gain of $10,000 you now have a “realized” taxable gain.

If you sell stocks with a loss of -$5,000 you now have a “realized” loss.

The -$5,000 loss offsets the $10,000 gain.

Now, instead of having $10,000 in realized taxable gains, you have $5,000 in realized taxable gains.

Once this is complete you reinvest your money. This is a critical step, as the goal here is to avoid ending up sitting on the sidelines.

The goal is to take gains, rebalance your portfolio, minimize the tax impact, and reinvest.

This is something that can be challenging to do on your own. You should consult with your advisor or tax professional before acting.

You should ask your advisor if he or she is already doing this for you. If they are not, you should talk with them about it.

If they are unwilling to work on this with you, you might consider looking for a different advisor. Or at least a second opinion.

From my perspective, if you are paying an advisor to manage investments for you, this is basic stuff they should already be doing without you having to ask them.

Click Here To Download Our Free Tax-Loss Guide

Securities offered through LPL Financial, Member FINRA/ SIPC. Investment advice offered through IHT Wealth Management, a registered investment advisor. IHT Wealth Management and AutomotiveWealth are separate entities from LPL Financial. 

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