It’s been another phenomenal year for PBRG subscribers. Check out these stats as of November 30…
The Palm Beach Letter, our flagship advisory, is up 50%. That’s more than 3x the return of the S&P 500.
Palm Beach Confidential has 33 recommendations up triple-digit percentages, including six picks up over 500%.
Crypto Income Quarterly has 11 portfolio holdings up in the range of 105% to 445%. On top of that, they sport yields as high as 55%.
To be fair, we’ve booked some losses along the way. And we have some current paper losses. After all, no investing strategy is perfect.
Still, subscribers who’ve followed our strategies are sitting on some huge gains this year.
But there’s a downside to all this success…
Uncle Sam gets his cut, as well.
If you’ve booked large gains this year in your taxable accounts, I’ll share a quick and easy way to offset them with any losses.
Harvest Your Losses
Every time you sell an investment, there’s a tax consequence.
If you have a gain, you owe money. If you have a loss, you might be able to write those losses off. And you can use the offsetting losses to your benefit.
It’s called “tax-loss harvesting.” And it can help you instantly recoup a portion of your biggest losses.
Here’s an example…
Say you have $20,000 in realized long-term capital gains in your taxable brokerage account, and you’re sitting on a cumulative loss of $12,000.
I won’t get into all the math… But by harvesting those losses, you would lower your long-term net capital gain from $20,000 to $8,000. Assuming a long-term capital gain rate of 15%, tax-loss harvesting would save you $1,800 in owed taxes.
And keep in mind, if your losses are larger than your gains, you can use the remaining losses to deduct up to $3,000 from your ordinary income. And if you incur any losses above that amount, you can roll them forward to future years.
So by realizing or “harvesting” a loss, you can offset taxes on both gains and income – and optimize your tax liability and returns.
What Should You Sell?
Individual stocks are a good starting spot. But you can also harvest losses on other securities, such as ETFs, mutual funds, and closed-end funds (CEFs).
If you want to find out if you have any losses to harvest, follow these steps:
Log in to your brokerage account.
Find the “History” or “Statements” section.
Click on “Realized Gain/Loss.”
Look for your winners and losers.
If you have meaningful realized gains, consider selling some losers.
Note: As a helpful hint, be on the lookout for positions in sectors like energy and financials. They’ve had sizable losses this year. And the same goes for specific industries, such as casinos & gaming, hotels, resorts & cruise lines, airlines, and various REITs.
Of course, you’ll want to avoid the “wash-sale” rule.
The IRS’s wash-sale rule prohibits investors from claiming a tax loss if they repurchase the same or substantially similar security within 30 days of the sale.
The way to avoid this rule is to use a “tax swap.” This is when you buy a similar but not identical security as a placeholder to maintain your prior exposure. You wait it out for 30 days and then decide whether to switch back to the original holding.
Be careful here. If you hit it big with your tax swap investment and sell it, those gains will be taxed at short-term capital gain rates, which are higher than long-term capital gain rates.
Remember, this advice is for general purposes only. Everyone’s financial situation is different. We recommend you consult a tax professional before harvesting any losses.
Just know that many investors neglect – or don’t know of – this smart tax technique.
Don’t be one of them.
Even if you’re having a winning year in the markets, you can still take advantage of your current losers come tax time.
Analyst, Palm Beach Daily