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.

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The Largest Stimulus Bill in U.S. History

Congress and the Trump Administration agreed to a deal for what will be the largest stimulus package in American history. Overnight, senators and the Trump administration officials reached a deal for approximately a $2 trillion stimulus to send direct payments and benefits to individuals and businesses devastated by the coronavirus pandemic. There will be a final vote today at noon and it is believed that the bill will unanimously pass and go into effect in the next few days.

The full details of the stimulus have not yet been released. The deal is expected to set aside $250 billion for direct payments to individuals and families, $350 billion in small business loans (https://disasterloan.sba.gov/ela/), $250 billion in unemployment insurance benefits and $500 billion in loans for distressed companies. As the plan was being negotiated, individuals who earn $75,000 in adjusted gross income or less would get direct payments of $1,200 each, with married couples earning up to $150,000 receiving $2,400 and an additional $500 per child. The payments would scale down by income and entirely phase out for individuals who earn more than $99,000 and couples who earn more than $198,000.

Although we are still waiting on the full and final details of the stimulus package, we are confident that people and businesses in need will have support from the government very soon. Members of Congress have also acknowledged that other legislative measures may be needed in the coming months if the pandemic continues to drag out.

Many of the loans and advances require current financial data and tax returns filed through 2018. Even if you still owe from previous years, make sure your tax returns have been filed through 2018. If you need any help getting caught up on your taxes and/or with loan applications, please reach out and we are happy to help. You can also follow us on social media to stay up to date on these events.

~Mitzi E. Sullivan, CPA

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

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SBA Economic Injury Disaster Loan Application Process

The U.S. Small Business Administration (SBA) has approved certain cities and states whose businesses have been negatively impacted by COVID-19 to be approved for the Economic Injury Disaster Loan.

On March 17th, Governor Greg Abbot requested emergency designation from the SBA Economic Injury Disaster Declaration to give access to the Economic Injury Disaster Loan program for the entire state of Texas. Abbot is estimating approval by next week. Small businesses can apply at: https://disasterloan.sba.gov/ela/.

The SBA has announced that the website is experiencing high volumes of traffic and slows down from 7:00 am to 7:00 pm. The best time to apply on the website is after peak hours from 7:00 pm to 7:00 am. It has been reported that some users are experiencing issues with Google Chrome. The SBA recommends using an alternate web browser like Microsoft Edge or Internet Explorer.

COVID-19: Economic Impact and Government Relief

With COVID-19 impacting the world economy, President Trump has made plans to help strengthen businesses. Small business loans will be available to eligible organizations negatively impacted by economic slowdown. The Small Business Administration (SBA) has been instructed to provide low-interest loans to help strengthen organizations negatively impacted by COVID-19. To receive an Economic Injury Disaster Loan (EIDL) from the SBA, the organization must be in a county who has been approved for an Economic Loss Declaration. Small businesses who receive the EIDL are set to accrue interest at 3.75% and nonprofits at 2.75% with repayment terms extending up to 30 years.

In addition to the Economic Injury Disaster Loan program, “[President Trump] will be instructing the Treasury Department to defer tax payments without interest or penalties for certain individuals and businesses negatively impacted.” This tax holiday will give businesses a 90 day grace period to pay 2020 Q1 ES payments.

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