Once a year, investors get a chance to lower their tax bill on investments outside of tax-advantaged 401(k) and IRA accounts. It can save thousands annually and is not difficult to do, but it requires the discipline to take the time to gather your records and remember the rules. We're here to help with tax-sensitive investing, and what follows is a reminder about how tax-loss harvesting works.
Picking What to Sell. Review your portfolio and identify what no longer fits. Did that hot stock tip from your brother-in-law not work out? Sell it and use the loss to offset the gain reaped by selling a winning investment.
Favor Short-Term Gains and Losses. Securities bought and sold for a year or less are subject to ordinary income tax rates, which can range as high as 37%, depending on your bracket. But long-term gains (investments held for more than a year) are taxed as capital gains and at a lower rate: 15% for most people and 20% for high-income joint-filers — $425,801 or more for singles, $479,001 or more for couples. IRS rules require you first apply all your short-term losses to offset short-term gains, but any additional short-term can offset long-term gains realized in 2018.