As we are thinking about sweaters, fall leaves, and Halloween, April seems like a long time from now. Taking a few minutes to think about next year’s tax time now could save you money and headaches.
As we enter the last quarter of 2018 your portfolio may now have some gains and some losses. Capital losses aren’t always a bad thing when it comes to tax planning. You can use a realized loss (meaning you sold the security and actually lost the money) in a non-registered account to offset a gain you have realized. If you have not realized any gains this year you may be able to carry the loss forward and use it in future years.
So, why would you want to do this? There are a number of reasons including:
- A particular security no longer meets your investment criteria. You may wish to sell the security and use the proceeds for another investment or other uses.
- You have realized a capital gain, potentially from the sale of your business
- You realized taxable capital gains in any or all of the previous three tax years and wish to recoup the taxes paid
While this sounds pretty straightforward, some capital losses are considered “superficial” and cannot be used to offset capital gains. When you sell an investment at a loss and re-acquire the identical property, in some cases, the loss may be a superficial loss. This means you cannot claim the loss and therefore cannot use it to offset capital gains. It is best to discuss specific sells you are planning for a capital loss with a tax and/or investment specialist prior to making the sell.
So, take a moment to think about spring flowers and the inevitable tax season still months away and save yourself some time, and hopefully, money! Talk with your financial advisor and your tax expert to see if any of these ideas might work for you.