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- Are you hitting the sell button?
Are you hitting the sell button?
but before you do, be aware of how selling now will impact your tax situation
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The past week has been volatile for markets. Between this week’s and last week’s newsletter, the S&P reached a low of 5,186 before climbing back up to above 5,344 at the close of markets on Friday, August 9th.
A week of volatility triggered the sell button for many institutional and retail investors alike, so what better time to review capital gains and losses than this week’s newsletter.
We’ll jump right in
Capital Gains and Losses
Question 1
True or False? You can offset stock gains with capital losses.
A. True
B. False
Question 2
What is the maximum amount you may claim as a capital loss in one year?
A. $1,000
B. $3,000
C. $7,500
D. $10,000
Question 3
True or False? You can carry over capital losses from one year to the next?
A. True
B. False
Work With Us
Making more than $100K per year? Wondering if there’s an opportunity to offset your capital gains with some losing positions? Come talk to us. We help H.E.N.R.Ys make financial freedom inevitable.
Quiz Answers
Question 1
Answer: A (True)
Simply put, tax-loss harvesting (TLH) is a strategy designed to deliberately take a capital loss in order to use that loss to offset taxes owed on an investment sold at a profit. It works by selling tradable investments such as security (stocks, bonds, shares in an exchange-traded fund) or even cryptocurrencies at a loss and using those losses to offset some, or possibly all, of the short-term and/or long-term capital gains. Investments in the red can be your ticket to a lower tax bill. TLH is more so about tax deferral than tax cancellation.
Question 2
Answer: B ($3,000)
You're allowed up to $3,000 per year to offset taxable income ($1,500 if you're married, filing separately).
Question 3
Answer: A
The good news is that the higher loss balance can be used on future tax returns. Remaining capital-loss balances can be carried over to offset future capital gains (or income) until it is used up. Thus there is no expiration date on the use of capital losses.
For more information on tax loss harvesting, capital gains, and capital losses check out our article here:
The best things in life are free, but sooner or later the government will figure out a way to tax them.