TIME TO BRING IN THE HARVEST!

If you sold capital assets in 2022 and generated taxable capital gains, it’s a great time to consider harvesting your capital losses to reduce or eliminate the capital gains tax. Below are a few strategies to consider.

If you sold capital assets in 2022 and generated taxable capital gains, it’s a great time to consider harvesting your capital losses to reduce or eliminate the capital gains tax. Below are a few strategies to consider.

Sell and Buy Back Stocks or Crypto

  • For your long-term hold stocks or cryptos that have built-in losses, consider selling before year-end and buying back the same asset later. To avoid wash sales, wait at least 31 days to repurchase stocks. Wash sale rules do not apply to cryptos.
  • If you are expecting lower Q3 & Q4 earnings reports, you may be able to repurchase the same asset at a lower price. This allows you to offset your capital gains, while maintaining your current positions.
  • You may want to maximize tax-rate arbitrage by exchanging short-term capital gains for long-term capital gains (LTGC).

Sell and Buy Similar

  • For stocks that have built-in losses, consider selling stocks before year-end and buying back similar stocks the same day. This allows you to offset your capital gains while maintaining your current portfolio balance.
  • The stocks cannot be substantially identical, or the wash sale rules will disallow the loss. This includes puts and calls.
  • However, you can purchase stock with a performance that is highly correlated with the stock you sold.

Sell and Buy Alternatives

  • For assets that have built-in losses, consider selling before year-end and buying alternative assets. This allows you to offset your capital gains and rebalance or reposition your portfolio.
  • For example, you may want to sell growth stocks with built-in losses and purchase value stocks or real estate. Or, you may have a taxable gain on the sale of your personal residence or business that can be offset with loss harvesting.
  • This may be a great way to clean up legacy assets.

Sell and Deduct Losses

  • If you don’t have gains to offset with losses, it may still be advisable to harvest losses. You can deduct up to $3,000 per year against ordinary income and carry unused amounts forward to offset future gains.
  • This allows you to save up losses and better time future gains.

Points to Ponder

  • Remember, the long-term capital gains tax rate starts at 0%. It most likely will not be beneficial to harvest losses in a year that you have qualified for a 0% LTCG tax rate.
  • You may want to recognize built-in gains to maximize your 0% LTCG tax rate for the year.
  • Loss harvesting is for taxable accounts only. It should not be used in retirement accounts.
  • Wash sale rules apply to purchases by your spouse or the company you control.
  • Consider the timing of dividend payments before selling.
  • Always consult your financial team. Everyone’s situation is different. Benefits depend on the investor’s tax rate when they deduct the initial loss, as well as the rate at which they realize the later gain that the initial loss created. 

Disclaimer: The information provided above is not meant to be legal or tax advise. You should consult your CPA and attorney to determine the best course of action for your situation.

~Mitzi E. Sullivan, CPA

Mitzi E. Sullivan, CPA is a cloud based professional services provider specializing in cloud accounting.

Facebook

Instagram

Twitter

LinkedIn

YouTube

 

Advertisement

Hunkered Down, day 6

Financial triage.

Texas got a liquidity lifeline last night. Abbott announced that all Texas counties have been included in the Economic Injury Disaster Declaration, which grants access to the Economic Injury Disaster Loan (EIDL) program. The program provides long-term, low-interest loans to small businesses (3.75%) and nonprofits (2.75%) with repayment terms up to 30 years. That’s great news for our local mom-and-pops and employers who are sinking fast.

The turnaround time for the Express loan is reported to be 36 hours. I’m a little skeptical, but I’ll let you know. We are prioritizing these applications and working as quickly as we can to help all of our clients. Bear with us, the 4506-T is already down this morning, and I started at 4am. I’ll keep trying throughout the day and let you know if I get one to go through. Click here to complete the online application at the SBA website.

Proposed: The Main Street Emergency Grant Program would offer grants to small, and possibly mid-sized businesses, and nonprofits to cover payroll and fixed costs, such as rent. The grants would be made avialable “quickly” to provide liquidity and avoid layoffs. This proposal has not been finalized.

Recommendation: Defer the Texas Franchise Tax payment and filing deadline until August 15th, 2020. The delay would defer preparation fees and tax payments for taxpayers, while allowing more time for tax return preparers to help clients navigate the current crisis. Please contact Glenn Hegar at the Texas Comptroller of Public Accounts and encourage him to support this recommendation.

See also:

~Mitzi E. Sullivan, CPA

Mitzi E. Sullivan, CPA is a cloud based professional services provider specializing in cloud accounting.

Avoiding and Navigating IRS Audits

Whether you are trying to avoid an IRS audit, or have received a notice from the IRS, this guide contains helpful information: irsaudits2019

See also: New Tax Law. What’s Hot. What’s Not.

~Mitzi E. Sullivan, CPA

Mitzi E. Sullivan, CPA is a cloud based professional services provider specializing in cloud accounting.

%d bloggers like this: