Stash Some Cash at 9.62% Before October 31?

I Series US savings I bonds (I bonds) purchased before 10/31/22 are paying an annualized 9.62% interest rate for 6 months. The rate decreases in November to an estimated 6.48% for the next 6 months. If you are looking for a place to park cash for more than 12 months, you may want to consider purchasing I bonds before the end of October (no later than 10/28/22).

Go to treasurydirect.gov to purchase directly from the U.S. Treasury.

Points to Ponder:

• I Series savings I bonds include a fixed rate and an inflation-adjusted rate, adjusted every 6 months.
• These are 30-year I bonds but can be cashed at any time after 12 months.
• You will pay a penalty for cashing in within the first 5 years. The penalty is equal to the last 3 months of interest. So, if you hold for 15 months, you will receive interest for 12 months.
• You can purchase up to $10k per individual social security number or entity federal identification number. For example, a family of 5 could purchase $50K plus gifted amounts.
• You can purchase additional amounts, up to $5k per individual social security number or entity federal identification number in paper I bonds via tax refunds.
• Paper I bonds pre-2008 can be converted to electronic I bonds in your Treasury Direct account.
• You can gift I bonds to increase the amount that can be purchased at the current high rates. Gifted I bonds will be held in your gift box until the beneficiary “receives” them.
• I bonds are exempt from state & local taxes.
• For more information, see 31 Code of Federal Regulations sec 363.16.
• Gifts are irrevocable. The holding period starts when they are purchased, not when they are received. Gifts received count towards the annual purchase limit.

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.

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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.

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.

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