Six things you should know about harvesting income tax losses

For many years, Johnson, Johnson & Associates, Inc in Yeadon, PA has been harvesting tax losses was almost exclusive to the wealthy. You couldn’t hear too many locals talking about harvesting income tax losses.

But that has since changed. As more tax professionals including as Johnson, Johnson & Associates, Inc in Yeadon, PA educate the people about income tax loss harvesting, more people, even those who aren’t so rich, are turning to this avenues to benefit in one way or another.

However, there are a few things about income tax loss harvesting that most people still don’t understand. Today, that’s what we’re going to discuss.

1. How exactly can a taxpayer benefit  from income tax harvesting?

Unknown to many, income tax losses harvesting primarily derives its benefit from the combination of tax-rate arbitrage and the compounding of the taxpayer's annual tax savings. Because you must ultimately pay another tax on the gains realized through tax-loss harvesting, most people think that there is now way you could end up profiting from the scheme. What they fail to understand is that the tax rate on the ultimate gain is always going to be lower than the rate at which you can benefit from the harvested loss. This is so because loss creates value at short-term capital rates while the gain is taxed at the much lower long-term capital gains rate.

1. Tax losses harvesting is best suited  for long-term investors

If you’re holding your portfolio for less than one year, then you have no business banking on tax loss harvesting because you won’t benefit from either the tax rate arbitrage or the compounding. Typically, the annual value of tax loss harvesting increases as your investment horizon increases, given that your savings will continue to compound throughout. That’s why tax loss harvesting proves a better fit for millennials who still have a lot of time to save and invest compared to boomers who will be retiring tomorrow.

1. Benefits from tax loss harvesting  typically increase with tax rate increases

Owing to tax arbitrage, if there is an increase in tax rates and you wait for at least one year after the increase take effect before withdrawing money from your tax loss savings account, then you will receive increased benefits. The tax professionals at Johnson, Johnson & Associates, Inc in Yeadon, PA have been helping people like you benefit from such opportunities. If you want to learn more about how you can tart benefiting, simply call us today.

1. One wash sale isn’t the end of the  day

For tax loss harvesters, a wash sale is the last thing they want to hear of. The wash sale rule governs whether the losses realized can be used to offset ordinary income and realized gains. The rule states that one cannot use a recognized loss to offset taxes if the perceived loss is resulting from the sale of a security that is replaced with a substantially identical security 30 days after or before the sale. ETF based tax loss harvesting companies go around the wash rule by replacing an ETF that trades at a loss with one that is highly correlated. If you don't want to be entangled in these issues, speak with Johnson, Johnson & Associates, Inc in Yeadon, PA to discuss your situation.

1. Using multiple daily tax harvesting  services helps create a significant wash sale issues

While one wash sale isn't usually a big problem, using multiple services with the same ETF at the same time can land you in problems. Most tax professionals, including Johnson, Johnson & Associates, Inc in Yeadon, PA will advise that married couples filing jointly should have their accounts linked to avoid this issue. 

1. The more finely grained your  portfolio, the more potential taxable benefits you get

Over its several years in the tax industry, Johnson, Johnson & Associates, Inc tax professionals have discovered that the more uncorrelated components you break your portfolio into, the higher the number of opportunities you will find to harvest your tax losses.

Summary

As you can tell tax losses and tax loss harvesting is a complex matter. Even the professionals at Johnson, Johnson & Associates, Inc in Yeadon, PA have taken a long time to master finally concepts in this field. But today, we are the masters of tax loss harvesting, and we want to help you take advantage of this rare opportunity to benefit from your tax losses.

If you’re ready to make the big leap, contact Johnson, Johnson & Associates, Inc in Yeadon, PA to speak with a CPA expert. Alternatively, call our Yeadon, PA offices and be sure find a tax preparer for your income tax losses harvesting queries.