Due to the evolving COVID-19 (coronavirus) pandemic, we have canceled all Local Chapter, SIG and IEG meetings. (At this time, we are still going ahead with plans for the 2020 AAII Investor Conference in Las Vegas in early October, pending how the pandemic evolves.) The AAII staff is working remotely to ensure our publications and enewsletters continue to go out and our website is updated regularly. Should you need to reach us with any questions, please contact us by email.
As a tumultuous 2020 first quarter draws to a close and the tax filing deadline approaches, this week’s digest covers various strategies for tax-loss harvesting and explains the wash-sale rules.
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How to Harvest Losses While Maintaining the Position |
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No one likes to see their investments turn into a losing position. And yet such declines are an almost inevitable result for anyone who manages even a modest-sized portfolio, particularly if it is diversified. Many investors are reluctant to sell their losers, hoping that their investment will recover and eventually show a profit. They would, however, like to be able to take a loss for tax purposes while preserving some opportunity to recover if the investment’s price rises sufficiently. Finance professor Ben Branch covers a number of available avenues for investors who want to harvest losses while retaining the essence of their position.
Some of the topics covered in the article include:
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Using “tax swap” strategies when realizing losses
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Option strategies for maintaining exposure
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Advantages and disadvantages of different approaches
As with any kind of investing, particularly one that involves more complex trades and tax treatment, you need to be aware of various potential pitfalls. This article can help provide clarity.
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Keeping Transactions Clean From the Wash-Sale Rules |
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The wash-sale rule was designed to prevent investors from selling a security at a loss so they can claim tax benefits, only to turn around and immediately buy the same security again. Even investors who have no intention of breaking this rule can get tripped up by it if they use an automatic investment strategy, such as reinvesting dividends, potentially costing themselves some tax benefits in the process. This article gives a clear explanation of the wash-sale rules in some detail so that investors can properly harvest tax losses without violating these rules.
Some of the topics covered in the article include:
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Basics of the wash-sale rules
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Demonstration of the rules
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How to avoid triggering the wash-sale rules
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The implications of “substantially identical” securities
As tax season approaches, investors who understand these rules are better positioned to harvest their tax losses without triggering the wash-sale rules. If you need more information on wash sales after reading this article, we encourage investors to refer to IRS Publication 550, Investment Income and Expenses, at the IRS website: https://www.irs.gov/publications/p550.
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Member Question
At this point in time, what issues are most important to you in the 2020 Presidential Election?
A) Education
B) Gun policy
C) Health care
D) Immigration
E) Taxes
F) The economy
G) The environment
H) Other (specify)
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Be sure to vote on this week’s question for the opportunity to offer your insights on our open-ended question. |
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Guide to Personal Tax Planning 2019 |
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 Have you yet to tackle your taxes this year? Our annual tax and financial planning guide summarizes in clear language the information you need to know to get those forms completed. Visit this popular member benefit at AAII.com for what’s new in the tax laws, essential investment-related tax information and readable tax tables for 2019 and 2020. More » |
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