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Tax-Loss Harvesting
The phrase “what goes up, must come down” certainly applies to the financial markets.
A beneficial strategy for investors, particularly when investments in their taxable accounts dip, is to capitalize on an approach called tax-loss harvesting. Tax-loss harvesting allows investors to realize investment losses to offset capital gains for their taxable assets, thereby potentially reducing their tax burden. As such, retirement accounts such as 401ks and traditional IRAs are exempt from harvesting losses given their tax-deferred status.
When one purchases an investment vehicle, the price paid is considered to be the “cost basis.” Over time, as the position rises or falls, one will have either a gain or loss on that investment. Before selling, this capital gain or loss is considered “unrealized” and will not be subject to taxation.
Once an investment is sold for more than it was purchased for, a capital gain will be recognized and taxes will be owed on the net gain. The tax impact depends on how long the investment was held prior to sale: anything owned one year or less would be considered “short-term” and is taxed at one’s ordinary income tax rate, anywhere from 0-37% based on current federal marginal tax rates. After being held for more than a year, the gain becomes “long-term” and is taxed at a lower rate, between 0-20%, depending on one’s overall federal taxable income. State income taxes are an additional consideration, if applicable.
If one has both capital gains and losses in a calendar year, it is possible use those losses to offset the gains. In fact, if one has more capital losses than gains in a calendar year, up to $3,000 may be used to offset ordinary income (for single filers and those filing as married filing jointly) and the remaining losses can be carried over to future years in perpetuity.
There are a few key best practices to watch out for with this strategy. First, be aware of the “wash-sale rule.” One must have owned a position for more than 30 days and one cannot repurchase that same or a substantially identical security in any account within 30 days after selling it at a loss. If one does either of these things, it’s considered a “wash sale” and no longer counts as a loss. If one repurchases a security that the IRS considers “substantially identical,” this will also trigger a wash sale. This applies to your entire tax return, so investors who have separate investment strategies from their partners should ensure that they are in sync when harvesting losses.
Tax-loss harvesting is usually at the forefront of investor’s minds as we approach the fourth quarter, simply because we have a better understanding of cumulative realized capital gains for the year. However, if one can opportunistically harvest losses throughout the year, they may be able to realize more losses. There also may be times when one cannot harvest any losses because the market is so strong and there simply aren’t losses to take in their accounts.
Overall, tax-loss harvesting can be an additive tool to your tax planning strategy; keeping in mind that it’s imperative to consult with your financial advisor and accountant to help you better understand what opportunities you have within your personal investment portfolio.
More information regarding capital gain or loss is available here and here.
Looming Tax Changes in 2025
The expiration of the Tax Cuts and Jobs Act (TCJA) could have significant implications for many Americans. One major change is that individual income tax rates are due to revert to pre-TCJA levels, which could result in a higher tax burden for taxpayers. Residents in higher-tax states may also feel the pinch from the loss of key deductions that were previously available. Moreover, the estate tax exemption limit is expected to decrease significantly, potentially cutting the current exemption by approximately half. This change could impact estate planning for families and individuals with substantial assets.
Corporate tax rates are likely to rise reverting to a higher top tax rate of 35 percent compared to the reduced flat tax rate of 21%, as the Tax Cuts and Jobs Act has been in effect, this could change and affect economic growth as increased corporate tax rates may discourage investment in innovation amongst businesses.
Ultimately, the full impact of these changes will depend on future legislative decisions following the expiration of the Tax Cuts and Jobs Act, unless legislative changes are enacted prior following the U. S. election cycle. It's crucial for individuals and families to stay informed about their personal tax situations and potential adjustments to their financial planning strategies.
Social Security
1. Social Security - New Portal
What: New home for Social Security online - Login.gov.
Why: More user-friendly, secure & compliant platform with federal authentication standards. Login.gov eliminates the need to remember multiple passwords and usernames each time you access participating government websites.
What You Need To Know:
- If you already have a Login.gov or ID.me account, no action is necessary.
- If you’re an existing user of my Social Security online, please follow the necessary steps:
- Sign in with your existing credentials via my Social Security. You'll then be prompted to change over to Login.gov.
- Follow the on-screen instructions to create a Login.gov account and link your existing account. At the end, you'll receive a confirmation screen.
- That’s it! You should then have immediate access to My Social Security and other services.
- Even if you don't collect Social Security benefits, it's worth updating your account. With the account, taxpayers are able to estimate their future retirement benefits before reaching permitted age.
- This new portal requires a password and two-factor authentication. Yes! The Federal Government recommends an extra layer of security via biometrics like face or touch unlock or an authenticator app.
- In lieu of using two-factor authentication via texts with a one-time login code, an authenticator app generates six-digit codes every 30 seconds or so. The Social Security Administration recommends many options for iOS and Android!
Here's how to make an authenticator app work with Login.gov:
- Download and install an authenticator app on your phone.
- Open your computer’s browser and sign into your Login.gov account.
- Select Enable next to Authentication app. Follow the instructions to scan or enter a code to link your authentication app to your account.
Help With Your Account
Although the Social Security Administration attempts to make the transition easy, some may encounter difficulties or have questions.
For assistance, visit Help | Login.gov to access the 24/7 customer phone and chat support.
2. Social Security - Cost-of-Living Adjustment
Starting in January 2025, approximately 68 million Social Security beneficiaries will receive a 2.5% cost-of-living adjustment (COLA). This adjustment is designed to help keep pace with inflation by helping beneficiaries cope with rising costs of living, especially for essentials like food, housing, and healthcare and ensuring that benefits maintain their purchasing power over time.
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