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Series: Year-End Tax Planning - Part III

12/6/2016

 
In the final part of our series of year-end tax planning, we will focus on tax-loss harvesting, and why consulting with an adviser is critical.  Tax-loss harvesting is a topic that is still relatively unknown by the average investor, but it has started to get more attention over last few years.  
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As most investors know, when you sell an appreciated security in a taxable account, you realize a gain.  The investor must then pay capital gain taxes on the gain.  Tax-loss harvesting is the practice of selling a holding that has experienced a loss in a taxable account.  By realizing, or “harvesting” a loss, an investor is able to offset taxes on both gains and income.  Currently, realized losses on investments can reduce ordinary taxable income by as much as $3,000 per year.  Any excess capital losses will be carried forward to the next year.  If your capital losses are large enough, the excess will be carried forward with a $3,000 reduction each year until the capital losses are completely exhausted.

This can be a useful strategy, especially when rebalancing, since it would not only provide a benefit to the investor come tax time, but it would also bring the account back into balance.  Tax-loss harvesting can be beneficial for the right investors.  However, like most investment or tax strategies, it’s best to rely on your advisers to determine if this strategy is appropriate for you. 

Over the past three weeks, we have covered a number of different topics that relate to year-end tax planning.  As we have stated throughout this series, consulting with your investment counsellor and tax adviser is important.  Tax laws are extremely complex.  Even though something may apply generally, that doesn’t mean that it will necessarily apply to your specific circumstances.  Only your advisors, who know your own personal circumstances, will know how these tax laws and strategies apply to you.  Many of the strategies discussed take careful planning and detailed knowledge to implement properly.  Improper implementation can turn what could be a valuable strategy into a costly mistake.

That wraps up our series on year-end tax-planning.  If you have any questions on how you can apply these tactics to your year-end tax planning, be sure to get in touch with your Investment Counsellor and Tax Adviser.

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    Author:
    Christopher J. Blair, CFP®, CPWA®,

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