Can You Turn Investment Losses into Tax Gains?

Can You Turn Investment Losses into Tax Gains? Cornerstone Wealth Management

Can You Turn Investment Losses into Tax Gains? Cornerstone Wealth Management

When markets take a spill, especially when it comes to your retirement investments, it’s harder to find ways to meet your financial goals. If you were relying on IRA or 401(k) withdrawals to cover your expenses, doing so when markets are down would decrease the lifespan of your savings. And if you’re nearing retirement, market losses may provide cause to push back the time you enter retirement.

While all these concerns are legitimate, there is a hidden benefit to selling your losing investments at a loss. Using a strategy called tax-loss harvesting, you can earn capital gains tax credits on your investment losses.

What is Tax-Loss Harvesting?

Selling stocks, mutual funds, exchange-traded funds (ETFs), and other investments carrying a loss to offset gains from other investments sold. Essentially, you can sell investments at a loss to cancel out investments you sold at a gain or for on personal income.  It’s crucial to know that tax-loss harvesting only defers your capital gains taxes, it does not eliminate them. But if an investor has no capital gains to offset in the year the capital loss was “harvested,” the loss can be carried over to offset future gains or future income – there is no expiration date.

When is the Right Time for Tax-Loss Harvesting?

This strategy is beneficial if you have a year in which your income or investment gains are abnormally high. Usually, around the time you retire, you will be adjusting how you cover your costs from external income to your own savings and investments. Doing so can create large, realized investment gains or abnormal personal income amounts on your tax returns. If this will be the case for you, engaging in tax loss harvesting may help you save on taxes in a sensible, legal way.

When it comes to tax-loss harvesting, timing is key. Knowing what tax years to make your asset adjustments is an important component of properly offsetting losses. But be sure to know other rules that make come with performing the tax-loss harvesting strategy. The Wash-Sale rule is a highly important rule to know to execute this strategy well. This rule prohibits you from claiming investment losses if you reinvested your assets in a similar or identical asset within 30 days of selling your previous one.2

Key Takeaway

Advocates of this strategy say that tax-loss harvesting is a shrewd way to turn a negative into a positive. Critics warn that tax-loss harvesting requires expertise and that the strategy can easily backfire, even when done professionally3. So, it’s generally a poor decision to sell an investment, even one with a loss, solely for tax reasons. However, tax-loss harvesting can be a useful part of your overall financial planning and investment strategy if the situation calls for it. But executing such a strategy is not easy to do on your own.

Whether you are concerned about optimizing your retirement holdings or have a different retirement concern, you can click here to sign up with us for a review of your financial situation to help you get a step closer to your financial goals.


The article and opinions in this publication are for general information only and are not intended to provide specific advice or Recommendations for any individual. We suggest that you consult your accountant, tax, or legal advisor with regard to your Individual situation. This content was created by Lone Beacon.

Registered Representatives offer securities through Independent Financial Group, LLC (IFG), Member FINRA/SIPC. Investment Advisor Representatives offer Advisory services through Independent Financial Group, LLC (IFG), a Registered Investment Adviser. Cornerstone Wealth Management, Cornerstone Tax Advisory and IFG are unaffiliated entities.

This material was partially prepared by Lone Beacon and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate.

Share This Post:
Cornerstone Wealth

SERVICES

Cornerstone Wealth

Schedule a Call

Ready to take control of your financial future? Schedule a call with Cornerstone Wealth Management today.

Join Our Mailing List

FINANCIAL INSIGHTS DELIVERED STRAIGHT TO YOUR INBOX

Birthdays Over 50 Worth Celebrating
READ OUR LATEST GUIDE

Birthdays Over 50 Worth Celebrating

Before you start planning for retirement, make sure you put these relevant dates in your calendar. Beginning at 50 years old, there are several birthdays that are essential to be aware of as they can influence your retirement timeline and overall financial plan.

The Fundamentals of Estate Planning
READ OUR LATEST GUIDE

The Fundamentals of Estate Planning

Estate planning can be an emotional process. After all, it’s difficult to think about things like who will raise your children, or which loved one will best manage your financial assets. Estate planning is necessary, however, because without a will, your estate may end up in court. This means it could be divvied up based on a judge’s ruling, rather than on your personal wishes.

Making the Transition to Retired Life
READ OUR LATEST GUIDE

Making the Transition to Retired Life

After all your years of hard work and disciplined saving, you’ve made it to retirement – congratulations! Now, the challenge becomes tackling common retirement transition concerns so that you can live out the ideal retirement you’ve dreamed of.

Addressing Market Volatility in Today's World
READ OUR LATEST GUIDE

Addressing Market Volatility in Today's World

Planning for retirement is never a “set it and forget it” task. There are unexpected disasters, market drops, and changing laws that could cause retirees to reevaluate their financial situation. Ultimately, there’s no way to predict everything that will cause market downturns. However, you can prepare yourself for one by having a solid financial strategy in place.

What to Consider in Your Charitable Giving Plan
READ OUR LATEST GUIDE

What to Consider in Your Charitable Giving Plan

Congratulations! You’ve decided to give to a charitable organization. Charitable giving is a wonderful way to help further causes you are passionate about and feel good while doing it.

The Importance of Designating Beneficiaries
READ OUR LATEST GUIDE

The Importance of Designating Beneficiaries

When life gets hectic and your to-do list seems endless, it can be easy to let financial planning details slip through the cracks. However, updates to your designated beneficiaries on 401(k) plans, IRA accounts, and other retirement assets is vitally important.

Managing Inflation in Retirement
READ OUR LATEST GUIDE

Managing Inflation in Retirement

You may have noticed that the things you buy regularly have become more costly, and you may be pondering if inflation will stay high. For individuals close to retirement or already retired, it is essential to take measures to protect themselves from the eroding effects of inflation.

Birthdays Over 50 Worth Celebrating
READ OUR LATEST GUIDE

Birthdays Over 50 Worth Celebrating

Before you start planning for retirement, make sure you put these relevant dates in your calendar. Beginning at 50 years old, there are several birthdays that are essential to be aware of as they can influence your retirement timeline and overall financial plan.

The Fundamentals of Estate Planning
READ OUR LATEST GUIDE

The Fundamentals of Estate Planning

Estate planning can be an emotional process. After all, it’s difficult to think about things like who will raise your children, or which loved one will best manage your financial assets. Estate planning is necessary, however, because without a will, your estate may end up in court. This means it could be divvied up based on a judge’s ruling, rather than on your personal wishes.

The Birth of a Grandchild
READ OUR LATEST GUIDE

The Birth of a Grandchild

Congratulations! The arrival of a grandchild is always an exciting time. Since many grandparents wish to assist in covering their grandchildren’s future financial needs, it’s also a good time to consider financial preparations for the future. If you hope to provide funds to your grandchildren, both 529 plans and trusts are beneficial options.

Cornerstone Wealth

WELCOME TO OUR NEW SITE

We've Made Some Big Changes

We’re delighted to introduce our new and improved online space tailored to elevate your online experience.

If you have any thoughts, questions, or if you’d like to schedule a consultation drop us a line. Your insights help us refine our services.

Making the Transition to Retired Life
READ OUR LATEST GUIDE

Making the Transition to Retired Life

After all your years of hard work and disciplined saving, you’ve made it to retirement – congratulations! Now, the challenge becomes tackling common retirement transition concerns so that you can live out the ideal retirement you’ve dreamed of.

Skip to content