It’s that time of year. Tax loss harvesting will save some thousands or even millions of dollars in capital gains taxes.
To do so it’s really simple, sell losses to offset gains or sell gains that already have corresponding losses so no tax is owed.
The way I do it is as follows:
Use a spreadsheet and create the following:
|Account||Short Term Profit||Long Term Profit|
|Short Term||Long Term|
Where the cells in the bottom right are sums of column B and C, respectively. At this point the alarming figure should be the short term gains. At this point go through your stock portfolio and hopefully find some short term losses you can sell before end of year end to offset this gain.
Most trading platforms will split out “Long Term” and “Short Term” gains/losses, if not a long term transaction is one which is longer than one year and a short term is one year or shorter.
You’ll want to keep an eye out to make sure you don’t perform a wash sale – these types of sales are not allowed to be claimed as losses. A wash sale happens when you sell a stock for a loss and buy the same shares within a month before or after that loss sale. This is to prevent tax loss harvesting of shares which are not really meant to be sold but sold purely to tax loss harvest.
You can look up the rules on capital gains taxes and wash sales at the following websites: