Have you ever heard the saying, “it’s a way to make lemonade out of lemons?” Effectively, it is turning a bad situation into a better situation by using the bad situation as the catalyst. In our world of wealth management, this will be a year where we make some lemonade out of the lemons of volatility and losses that some investments have experienced. What does that mean and how can it benefit you in 2022 and beyond from a tax perspective?
Let’s touch on a concept called tax loss harvesting. The concept is based around the principal that we always try and solve for the lowest tax consequences for our clients in any given year. No one knows what next year or the year after will hold from a tax law perspective and we always feel it is best to deal with them one year at a time. We advocate for our clients to not presume too far into the future. Based on that thought process, if some of the investments in your non-IRA accounts are down for the year, or just down in general, it may be a good idea to take the loss and reinvest the money back into something appropriate. For example, if you bought a growth stock index fund at the end of 2021 and it is still down in value as of October of this year, you may wish to consider selling it and reinvesting back into something that has a lot of the same style exposure but that is not the exact same fund – maybe a total market index or an S&P type index of all stocks. Tax loss harvesting allows you to realize the capital loss (for tax reasons) to offset against gains this year and in the future and/or to take as a $3000 offset in the year you take the loss. There are ways to get some current benefits from a tax perspective and still own materially the same investments going forward. An investor can also just simply stay out of the investment they sold, at a loss, for 31 days and buy back in to the same investment (at current price). Selling an investment for a loss and staying out of it for 31 days will keep an investor from being subject to the “wash sale rule.”
There are a multitude of strategies that we deploy for our clients throughout the year. We do this on a discretionary basis in our advisory accounts when we think the benefit to the clients far outweighs not doing something. Let our firm take a look at your situation and give you some recommendations that we think will help you.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
This information is not intended to be a substitution for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. No strategy assures a profit or protects against loss. Marzano Capital Group and LPL Financial do not provide tax advice.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Independent Advisor Alliance, a registered investment advisor. Independent Advisor Alliance and Marzano Capital Group are separate entities from LPL Financial.