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Investment Planning |
Using a Down Market to Lower Your Future Tax Bill
Down-markets are not all gloom. JLFranklin Wealth Planning uses the tax code to our clients' advantage.
We've been reviewing taxable accounts to "harvest" tax losses. The strategy of harvesting tax losses is simple yet powerful. Where it makes sense from an overall portfolio perspective, we sell one fund at a loss and buy a similar fund, thus keeping your asset class exposure intact. The loss can be used in the current year to offset capital gains from mutual fund distributions or the sale of funds. If losses remain after offsetting current-year gains, $3,000 of losses can go toward offsetting an equal amount of ordinary income from wages, dividends, and the like. Finally, any losses remaining after that can be carried forward indefinitely and used to offset future capital gains.
When the stock market is volatile, it is a great time to harvest losses to store for future use. In times when the stock market is rising, funds often distribute large capital gains. If enough losses are harvested in your account during a market correction, you'll see the benefit for many years to come in the form of lower annual tax bills.
Tips Disclaimer
These tips contain information that may change over time as a result of new tax legislation. Although we make efforts to keep this information current, you should check with your tax advisor before taking action based upon any information contained in these tips.