Take tax losses if you have them
It’s that time of year again. Tax loss selling time has crept up on us and it’s time to take advantage and sell your losers if you have any. The stock market has posted significant gains this year, so most investors do not have many losses. However, if you own individual bonds or other fixed income securities you may have some that can be sold for a loss. My advice would be to book any losses you have to offset any realized gains. We take a proactive stance toward keeping our client’s accounts tax efficient. That doesn’t mean we sell something just because we need the loss. There is still research that goes into it.
For one, you need to make sure that you avoid breaking the “Wash Sale Rule”. The wash sale rule prevents you from taking a loss on your tax return if you bought or sold the stock within 30 days prior too or after the trade date. For example, let’s say you own XYZ stock and you sell it for a loss on December 15th, you would have to wait 30 days before you can repurchase that security if you want to write off the loss. Also, if you purchased the stock within 30 days prior to the trade, the wash sale rule still applies. Please consult a tax advisor when it comes to certain investments as they may be treated differently than a common stock loss. Mutual funds can be tricky as well.
Mutual funds will have gains and losses within the fund throughout the calendar year. If you own mutual funds, you should check with the company to see what capital gains or losses will be distributed. This usually takes place sometime in December. This is also one of the pitfalls of mutual fund investing because you as the shareholder have no control over the gains and losses in the portfolio. It’s important to find out this information so that you can offset any capital gains if possible. In fact, you may own a mutual fund and have a loss on that fund and you still could end up having to pay capital gains due to the fund distribution. Do not worry about your qualified accounts such as IRA’s and 401k’s as this does not apply to tax-sheltered accounts. For anyone who is 70 1/2 years of age, I would advise you to make sure you take your Required Minimum Distribution or RMD. This is the amount that Traditional, SEP and SIMPLE IRA owners and qualified plan participants must begin distributing from their retirement accounts by April 1 following the year they reach age 70 1/2. RMD amounts must then be distributed each subsequent year.
It’s always wise to tax plan throughout the year, but I find that these year-end tips can be helpful. If you have any questions on this topic, feel free to call me at 772 223-9686. Please seek tax and investment advice prior to relying on the information provided in this article. The opinions expressed are that of the author and should not be considered advice for your portfolio.