As the year comes to a close, it’s an ideal time to finalize your tax loss harvesting strategy. For many investors, tax loss harvesting provides a way to offset gains, reduce taxable income, and possibly improve portfolio efficiency. We aim to guide our clients through tax planning strategies that might have a positive impact on their financial situation, without promoting any undue concerns or relying on unrealistic expectations. Here’s a detailed look at tax loss harvesting and key considerations as we move toward the end of the year.
Understanding Tax Loss Harvesting
Tax loss harvesting is the process of selling investments that have decreased in value to realize a loss. These losses can be used to offset the gains made elsewhere in your portfolio, potentially lowering your taxable income. While tax loss harvesting may seem like a straightforward strategy, understanding its mechanics and implications is important for implementing it effectively.
Key Considerations for Your Tax Loss Harvesting Strategy
1. Timing of Sales and Harvesting Losses
The timing of your tax loss harvesting transactions is an important factor. The strategy generally works best when losses are realized by the end of the calendar year, so they can be applied to offset gains in the same tax year.
- End-of-Year Consideration: To ensure that losses are applied to this year’s taxes, sales of assets must be made by December 31. This gives you the opportunity to use any losses to offset gains for this year’s tax filing. If you have gains in your portfolio, it’s worth considering whether harvesting some losses makes sense before the year ends.
- Losses and Gains Offset: It’s important to remember that tax loss harvesting doesn’t erase losses entirely. Instead, losses can be used to offset capital gains, dollar-for-dollar. If you have more losses than gains, the remaining losses may offset up to $3,000 of ordinary income per year for individual filers ($1,500 for married individuals filing separately). Losses above this amount can be carried forward to offset future gains.
2. Avoiding the “Wash Sale” Rule
A common pitfall in tax loss harvesting is the wash sale rule. The wash sale rule disallows a tax deduction if the investment is repurchased within 30 days of the sale. To comply with this rule, ensure that you do not buy back the same or substantially identical security within the 30-day period after selling.
- Alternative Investments: If you want to maintain exposure to a certain sector or asset class, you might want to consider purchasing a different security that provides similar exposure but is not considered “substantially identical.” This allows you to maintain your portfolio allocation while still realizing a tax loss.
3. Taxable Accounts vs. Tax-Advantaged Accounts
Tax loss harvesting applies primarily to taxable investment accounts, such as brokerage accounts. It is important to note that tax loss harvesting does not apply to tax-advantaged accounts like IRAs or 401(k)s. Losses realized in these accounts do not affect your taxable income because the tax treatment of these accounts already differs.
4. Integrating Tax Loss Harvesting into Your Financial Plan
Tax loss harvesting can be a valuable strategy to reduce taxable income, but it’s essential to consider its impact on your overall financial plan. A thoughtful approach ensures that short-term tax benefits align with your long-term objectives.
- Portfolio Rebalancing: Selling investments to harvest tax losses may alter your portfolio’s asset allocation. It’s important to reinvest proceeds into positions that maintain your desired allocation and align with your financial goals. This ensures your portfolio stays balanced and diversified.
- Maintaining Your Investment Strategy: Tax loss harvesting should complement your overall investment strategy, not disrupt it. The goal is to improve tax efficiency while staying on course to meet your long-term financial objectives. Discussing strategies like this with us will help you gain a better understanding and provide clarity.
5. Capital Gains and Losses in 2024
In the context of tax loss harvesting, understanding current capital gains rates is critical. As of 2024, long-term capital gains (on assets held for over a year) are generally taxed at preferential rates. For most taxpayers, long-term capital gains are taxed at 0%, 15%, or 20%, depending on taxable income levels. Short-term capital gains (on assets held for one year or less) are taxed at ordinary income rates.
Final Thoughts on Tax Loss Harvesting
“Taxes are unavoidable, but they take a significant chunk out of your income, leaving less to invest,” as Ballentine states in Chapter 6 of Wealth on Purpose. One strategy that may help reduce taxable income is tax loss harvesting. By offsetting capital gains with losses, you may be able to lower your overall tax liability. By being proactive, working with us, and making thoughtful decisions about which assets to sell, you could improve your tax situation, allowing more of your income to be available for future investment as we approach the end of the year.
If you have any questions regarding your portfolio, please give us a call!
Sources: Located at the bottom of article
Golf Tip of the Week:
Hitting pure short irons, explained
Admit it. You’ve spent hours at the practice range, hitting ball after ball with your pitching wedge or 9-iron, looking for that pure contact tour players seem to achieve effortlessly. You’ve sped up your swing, slowed it down, and done all kinds of things with your hands, all in an effort to make the ball fly with predictable trajectory and the backspin to stop your shots by the hole.
But the secret isn’t in your hands, or in the dirt. It’s in your backswing.
“Hitting good short iron shots has nothing to do with speed. It’s about getting the club to come into the ground and the ball on the right angle and path,” says Golf Digest Top 50 Teacher Michael Jacobs. “That means you need more ‘vertical’ in your swing.”
We can learn from two of the best ball-strikers on tour, who led the PGA Tour in strokes gained/approach in the 2019-’20 season—Justin Thomas and Collin Morikawa. Though tour players are very good at doing things average players can’t do, we can study how they hit short irons and try to copy their positions.
The first key to finding the center of the clubface with your short irons, Jacobs says, is to forget the idea that you should use the same swing for these clubs as you would for a hybrid or a driver.
“Look at Justin Thomas in the video below. At two-thirds of the way through his backswing, his left arm is in line with the top of his right shoulder, or his collarbone,” says Jacobs.
“For most players, it’s way lower, under where the logo would be on the shirt. The arm that low means the shaft is also low, which might work for a more sweeping swing but won’t help you hit short irons well.”
To work on it, make some less-than-full swings with a short iron where you do the opposite of what you might have heard when it comes to using a headcover under your trail arm as a training aid. Instead of holding it under there for the swing, start with it tucked there and make sure you drop it early in the backswing.
“When you can get that left arm in line with your collarbone—like Collin Morikawa also does, above—the club stays more in front of your body early, instead of getting behind you. You won’t be swinging any faster, but you’ll make much better contact and produce better ball speed and a more predictable launch.”
Golf Tip adapted from golfdigest.com i
Recipe Tip of the Week:
Macaroon Blossoms
Ingredients
3 large egg whites
1/8 teaspoon kosher salt
2 3/4 cups unsweetened shredded coconut (about 14 ounces)
One 14-ounce can sweetened condensed milk
1 tablespoon pure vanilla extract
32 to 34 chocolate candies, such as Hershey’s Kisses, unwrapped
Directions
- Position oven racks in the upper and lower third of the oven and preheat to 325 degrees F. Line 2 baking sheets with parchment; set aside.
- Beat the egg whites and salt in a large bowl until frothy, about 1 minute. Add the coconut, condensed milk and vanilla and fold together until combined.
- Drop the batter in heaping tablespoons (or use a 1-ounce ice cream scoop) onto the prepared baking sheets, spacing them about an inch apart. The cookies won’t spread during baking, so you can arrange them in 4 rows to bake the full batch on 2 baking sheets, 16 to 17 cookies per sheet.
- Bake, rotating the baking sheets from front to back and top to bottom halfway through, until the bottoms and edges are nicely golden brown, 35 to 40 minutes.
- Working with 1 baking sheet at a time, immediately press a chocolate candy into the center of each cookie. If the cookies spread too much or start to crumble around the edges, simply use your fingers to lightly press the cookies back around the chocolate candies. Transfer the baking sheets to a cooling rack to cool completely.
Store in an airtight container at room temperature.
Recipe Tip adapted from foodnetwork.com ii
Travel Tip of the Week:
How to Visit Venice Responsibly, According to Locals
The iconic city has become a poster child for overtourism, but locals say it’s still possible to visit respectfully.
There’s perhaps no other city in Italy that can leave you as disillusioned. But, in spite of the crowds, the chaos, and the ever-creeping tides, Venice is still a place that’s full of wonder.
The key to avoiding disappointment, says hotelier Gioele Romanelli, is seeking out more low-key moments in the less-trammeled quarters. “Visitors must realize they are in a real city with real people who are involved in keeping this place alive,” he says.
At his properties, Hotel Flora and Novecento Boutique Hotel, the staff makes a point of recommending long-standing, Venetian-owned businesses and cultural sites away from the well-worn Rialto Bridge–Piazza San Marco route. Doing so, Romanelli explains, creates “a virtuous circle” of sustainable tourism that preserves the city, and rewards curious visitors.
Here’s the advice that Romanelli and other longtime residents shared with me about how to reap the rewards of being a better visitor.
Keep walking.
For Melissa Conn, of the preservation nonprofit Save Venice, the antidote to the crush around Piazza San Marco is a short stroll away in the Castello district, where butchers, bakers, and small restaurants abound. “Wander into the churches, come see the artworks,” she says, naming San Giovanni in Bragora as a standout, along with the historic Scuola di San Giorgio degli Schiavoni. “Entrance fees are low, and your money helps preserve these spaces.”
Shop smart.
Skip the glass trinkets and instead visit Archivio CameraPhoto Epoche, a gallery and boutique overseen by photographer Vittorio Pavan. It holds more than 300,000 black-and-white images taken in Venice, from the postwar years to the 1980s. “It’s a private collection, but it belongs to all of us,” Romanelli says.
Sail away.
Take a vaporetto, or water bus, to the northern islands of Burano, Mazzorbo, and Torcello. “People there are still attuned to the rhythms of nature and season,” says author and photographer Valeria Necchio, who works with Inside Venice, a tour company. Many visitors stop by for a few hours to see Burano’s famously colorful houses, but Necchio recommends spending a few nights at Casa Burano, an albergo diffuso with a variety of contemporary-chic rooms and suites set across five buildings.
Think small.
Fondazione Querini Stampalia is “one of the museums most loved by Venetians,” says tour guide Luisella Romeo. “The mix of Neoclassical and Rococo is beautifully presented, and there’s an incredible art collection,” Romeo notes. “It also has the most beautiful gardenin Venice.”
Meal plan.
“Your chances of eating better improve the farther away from Piazza San Marco you stray,” says Jill Weinreich Luppi, a 30-year resident of Venice who works in the arts. One of her favorites is Nevodi, in Castello. But don’t count on getting a same-day table at any of the best spots. “Venice requires that you do your homework — and that means reserving in advance, even in the so-called ‘off-season.’”
Get real.
“During the week, Venice is a city that works, that builds,” says Guido Jaccarino, director of UnisVe, a union of Venetian artisans and restorers. “But those workers disappear on weekends and are replaced by tourists.” That’s why he recommends avoiding weekend trips. Midweek, it’s easier to fall into the rhythms of a neighborhood by stopping by the same café or bar every day for an espresso or aperitivo.
Travel Tip adapted from travelandleisure.com iii
Copyright © 2024. Ballentine Capital Advisors. All rights reserved.
Our mailing address is:
Ballentine Capital Advisors
15 Halton Green Way
Greenville, SC 29607
Sources:
- Internal Revenue Service (IRS) – Tax Loss Harvesting Guidelines
- Investment Company Institute – Tax Planning Strategies
- The Balance – Understanding Capital Gains Tax
- IRS Publication 550 – Investment Income and Expenses
Disclosure:
Ballentine Capital Advisors is a registered investment adviser. The advisory services of Ballentine Capital Advisors are not made available in any jurisdiction in which Ballentine Capital Advisors is not registered or is otherwise exempt from registration.
Please review Ballentine Capital Advisors Disclosure Brochure for a complete explanation of fees. Investing involves risks. Investments are not guaranteed and may lose value.
This material is prepared by Ballentine Capital Advisors for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation or any particular security, strategy, or investment product.
No representation is being made that any account will or is likely to achieve future profits or losses similar to those shown. You should not assume that investment decisions we make in the future will be profitable or equal the investment performance of the past. Past performance does not indicate future results.
Advisory services through Ballentine Capital Advisors, Inc.
ihttps://www.golfdigest.com/story/short-irons-instruction-explained
iihttps://www.foodnetwork.com/recipes/food-network-kitchen/macaroon-blossoms-17307689
iiihttps://www.travelandleisure.com/how-to-visit-venice-italy-reponsibly-8711440
