Transcript:
Marie Marinovich:
What’s the advantage of tax loss harvesting?
Tom Vaughan:
Oh, tax loss harvesting, it’s actually really important. What we do here generally speaking on and this, this would be in an account, where when you make a transaction, it ends up on your tax return, right? So an IRA, that doesn’t happen, you don’t have to put a texture, the only thing I put on texture from IRA is if you take money out, right, and it goes on tax return, you can buy and sell inside of an IRA, a 401k, a 403, B 457, plan all these retirement plans without it being on there, on your tax return. So what we’re talking about here is a taxable account, right? People call them individual accounts, sometimes they call it a trust account, because they have it in a trust, their brokerage account always got different names for it. But in the end, whatever dividends interest and capital gains or losses, end up on your tax return. So capital losses are useful. I’d rather that everything we bought went up every day. And we never had a capital loss. But you know, things do vacillate. So right now, for example, is a pretty good time to harvest losses. We did some of it yesterday, when that when the market fell, and, and really, so at the beginning of the year, if I have some gains in positions, that I’m not that excited about keeping, I’ll generally take it right at the beginning of the year. And then I try to find capital losses throughout the rest of the year, to essentially offset those gains. And so that’s what they call harvesting. So I might have a position that I really want to keep it, I don’t have any problem with it, but it’s at a loss, I’ll sell it, and I’ll either buy something else, or I’ll just and I will put it in the money market, it’s 31 days later, I can buy it back if I want. So that’s that’s one of the tax loss harvesting pieces.
And so there’s a little bit of a gray area as to what else you can buy, you have to be careful, you cannot buy back the same stock, that’s fairly obviously sell forward, you can’t buy it back for the next day, you have to buy back for 31 days later, that’s just the way it works. You can buy GM, that’s not a problem. But if you sell an auto ETF and buy a different auto ETF, that’s the gray area right now as to what what you can do there. And I’ve not heard of anybody being really called to the carpet on this, you know, and having their last disavowed because of that. But nonetheless, it’s something to be a little careful of, obviously, the best option is to just you know, buy something completely different. And so that’s what we’ll do, we kind of changed the models, and those things that are lost get swept out, we buy new things. So we’re still basically in the same spot in terms of risk. And then we gather those losses. So if I took 100,000, and gains, and you know, January, then I’m going to try to find, you know, 100,000 losses in a market like this, where things are down. And so because it’s money in the bank, if I if I can find $100,000 worth of losses to offset $100,000 with the gains, it saves me, I don’t know, roughly 25 $30,000 in tax that I would have had to pay and get that back maybe to zero if I can find the losses to do that. And so what it does is it you know, because theoretically those could all come back and be profitable, right? But I bought, you know, I sold them at this point, at the bottom bought something fairly similar still comes back, and I gathered that loss right there. And then I can use that against my gains. Even if I don’t have gains, I can carry forward losses for years and years. You can write $3,000 worth of your losses off of your ordinary income every year. And then any other gains that you get, I think it’s 15 years and total. You can continue. So it’s like money in the bank. It just wipes out these gains that you can take on your holdings. So tax loss harvesting is is really an important component that’s for sure.