What Is Tax Loss Harvesting

Investors hate to lose money. But with tax loss harvesting, you can at least get a tax benefit to help offset some of your losses. Tax loss harvesting involves selling a losing investment in order to generate capital losses that you can write off on your tax return. The current tax rules allow you to use capital losses to offset an unlimited amount of capital gains. If you have any capital losses left over after entirely offsetting your capital gains, then you can apply up to $3,000 of those remaining losses against other types of income, including wages and salaries.

Although many investors use tax loss harvesting strategies toward the end of the year, you can harvest tax losses at any time.

How much tax loss harvesting can save you

The amount of money you can save in taxes through tax loss harvesting depends on your tax bracket and the nature of the income you're trying to offset. For instance, the IRS taxes the profits you earn when you sell a stock or other investment, but different rates apply depending on how long you've owned the investment. For investments you've held for a year or less, short-term capital gains tax rates apply, which are higher than the long-term rates that apply to investments you've sold after holding for longer than a year.

Capital losses from tax loss harvesting are treated the same way. You can offset short-term gains with short-term losses and long-term gains with long-term losses. Then, if you have a loss in one category and a gain in the other, you can use the loss to offset the gain. Finally, any remaining amount is available to reduce other types of taxable income outside the investment realm.

Long-term capital gains tax rates run from 0% to 20%. Meanwhile, the same tax brackets that apply to regular income, like salary and wages, also apply to short-term capital gains, and they range from 10% to 39.6%. High-income taxpayers with short-term gains to offset can earn back almost two-fifths of their investment losses by taking the capital loss tax break.

One thing to watch out for

In order to harvest tax losses, all you have to do is sell the stock. However, you can't simply buy back the stock immediately thereafter. In order to comply with the wash sale rules, you have to stay out of the stock for at least 30 days following the sale. If you don't, then you can't harvest that tax loss. But once you wait out the period, then you can buy back the stock with no tax penalty.

The rule defines a wash sale as one that occurs when an individual sells or trades a security at a loss and, within 30 days before or after this sale, buys a “substantially identical” stock or security, or acquires a contract or option to do so

The wash sale rule can make it difficult to harvest tax losses from a stock that you hope to rebound. By being out of the stock for roughly a month, you might well miss out on a sizable share-price gain. However, the IRS thinks these measures are necessary to prevent abuse of the tax loss harvesting strategy.

Suffering losses in your investments is never fun, but tax loss harvesting lets you get a little of your money back from the IRS. By knowing what you have to do in order to claim those tax losses, you'll be better prepared to cut your tax bill when tax season rolls around again.


At Nugent & Associates, we're not just number crunchers. We bring over 3 decades of invaluable certified public accounting and tax expertise to your company – serving as business and financial strategists who can offer such services as tax and financial planning, investment advice, diligent financial records, and help with estate planning.

Even better, we will give you time to focus on what you do best: running the day-to-day operations that drive your business toward success.

Take advantage of our FREE and no obligation business checkup.

We will visit you at your business at a time and day convenient for you, analyze your numbers, discuss your goals and concerns and report back with a complimentary detailed written analysis to help your business succeed!

At Nugent & Associates, we're not just number crunchers. Our people bring decades of invaluable certified public accounting and financial and tax expertise to you – offering tax and financial strategies to individuals such as yourself. If you have any questions or concerns about your own tax, financial or investment matters, please do not hesitate to contact us.

Experienced tax and financial experts are not just for the super rich. At a reasonable fee you too can maximize your wealth and receive professional guidance for retirement, and/or any tax issues you may be facing, no matter your situation, with a tax and financial expert as your consultant.

Contact Nugent & Associates today. We don't charge for phone calls. You may just find you found an ally in your quest to have a great financial future.

After all, at Nugent & Associates, we succeed when you succeed!


Disclaimer:

PLEASE READ THE FULL TERMS AND CONDITIONS OF THIS WEBSITE BEFORE USING THIS WEBSITE.

This page is intended to be informational. This website, nor any of the information contained on this site constitutes professional, business, tax or legal advice and is not a substitute for such advice nor does it create a professional-client relationship between you and Nugent & Associates.

State and federal laws change frequently, and the information in this page may not reflect your own state’s laws or the most recent changes to the law.

The information contained within this website should not be considered as a solicitation or an offer for a professional-client relationship. Materials contained in this website are of a general nature and should not be substituted for professional advice. Nugent & Associates is providing this website and the information contained herein only as a convenience to you. Nugent & Associates assumes no liability or responsibility for any errors or omissions contained within this website. There is no guarantee that the information included on this site is current, accurate, complete, useful, or reliable.

Tax Planning & Preparation

We assist our clients in individual and business tax planning throughout the year.

Nugent & Associates provides:
  • Year-Round analysis to ensure a smooth and predictable year-end close.
  • Assist in establishing retirement planning.
  • Performs in-depth review of all deductions available.

Monthly/Quarterly
Financial Statements


Nugent & Associates offers outstanding accounting services and acts as a quasi-controller for companies who do not employ their own full-time accountants.

This allows our clients with more time to focus on new services, new customers and other core business issues.

Business Planning, Budgeting
& Growth Strategies


Nugent & Associates assists it clients with:
  • Starting a new venture, product or service
  • Expanding a current organization, product or service
  • Buying a new business, product or service
  • Turning around a declining business

QuickBooks Training
& Support Services


As Certified QuickBooks Professional Advisors, we can be of assistance with QuickBooks accounting or payroll and help increase your productivity and efficiency.