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What if you could offset your investment gains by strategically selling at a loss—are you making the most of your tax-saving opportunities?
In this episode, Mike explains the tax strategy of tax loss harvesting, which involves selling investments at a loss to offset gains in other areas, ultimately reducing tax liability. The episode covers how to execute this strategy, the wash sale rule, and common mistakes to avoid. Key points include understanding the wash sale rule, which prevents the deduction of a loss if the same or substantially identical stock is repurchased within 30 days. The host also discusses how to maximize the benefits of tax loss harvesting while being strategic and mindful of its limitations.
[00:00 - 05:21] Introduction to Tax Loss Harvesting
- Mike introduces tax loss harvesting as a way to save money by offsetting capital gains with losses.
- Tax loss harvesting allows investors to turn investment losses into tax-saving opportunities.
[05:22 - 10:55] How Tax Loss Harvesting Works and The Wash Sale Rule
- Mike explains the mechanics of tax loss harvesting, including offsetting capital gains and ordinary income up to $3,000 per year.
- The wash sale rule is introduced as a key consideration in tax loss harvesting.
- Buying the same security in an IRA within 30 days of selling it in a taxable account also triggers the wash sale rule.
[10:55 - 14:30] Avoiding the Wash Sale Rule
- Mike explains the implications of buying back the same investment after the 30-day period and how this can be an effective strategy.
- After 30 days, it's safe to buy back the asset without triggering the wash sale rule.
- Another strategy is simply waiting out the 30-day period to repurchase the asset.
[14:31 - 16:00] Common Mistakes and Considerations in Tax Loss Harvesting
- Mike shares some common pitfalls, such as neglecting to account for the wash sale rule or selling investments too hastily without considering the long-term implications.
- He advises listeners to work closely with tax professionals when engaging in tax loss harvesting to maximize its effectiveness.
Direct Quotes:
"Smart investors know how to turn losses into gains—into tax-saving opportunities." - Mike Jesowshek, CPA
"You can’t just sell and buy the same stock back right away without triggering the wash sale rule." - Mike Jesowshek, CPA
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Podcast Host: Mike Jesowshek, CPA - Founder and Host of Small Business Tax Savings Podcast
Join TaxElm: https://taxelm.com/
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Small Business Tax Savings Podcast