Harvest Time for Taxes

Harvest Money

The stock market may be surging today, but it hasn’t exactly been a banner year for investing.

If your portfolio is showing more red than a Valentino runway show, don’t get mad, get tax-savvy. Selling investments at a loss can generate a nice tax break, says CPA Ben Tobias of Tobias Financial Advisors.

It’s called “tax-loss harvesting.” Here’s how it works:

Say you invested $10,000 in a mutual fund. Today the investment is worth $6,000. You can either hang onto it, hoping that it turns profitable someday. Or you can sell it, and use that $4,000 loss to offset capital gains you have elsewhere in your portfolio.

So if, say, you sold an investment this year with a $5,000 profit, now only $1,000 of it would be subject to taxes.

But I have no gains this year!” you sigh. Losses can be used to offset up to $3,000 in ordinary income. Anything leftover can then be used next year.

A few key points:

  • Tax-loss harvesting only works in taxable accounts.

  • This can work with various types of investments, such as stock, mutual fund and exchange-traded fund shares.

  • Always consider trading fees.

  • Before you sell, check in with a tax pro.