How did your portfolio perform this year? Unfortunately, every stock can’t be a winner, but if you have done well, remember that the government will be looking to take a cut of any profits in the form of capital gains taxes. The end of the year is a good time to consider unloading the losers to offset these capital gains. As 2017 comes to a close, here are a few considerations as you review your investments:
Long-term and short-term gains: When considering gains and losses, stocks should be split into two categories. Stocks that you’ve held more than a year are long-term, and those you’ve held one year or less are short-term. Long-term investments are subject to capital gains taxes, while short-term investments are taxed as regular income.
Net profit and loss: Again, keeping these two categories separate, you can sell off losing stocks to offset the gainers. You can only apply short-term losses to offset short-term gains, and long-term losses to offset long-term gains. The resulting net profit or loss will determine whether or not you owe.
Remember the stipulations: There are a few clauses to keep in mind as you balance out your portfolio. You can only write off $3,000 worth of losses in a single year. If you sell off more than that, you’ll be able to apply it to the following tax year. Additionally, the IRS will not allow you to claim a loss on a stock if you purchase it back within 30 days — this is called the Wash Rule.
Make sure to communicate your actions and/or intentions to your tax professional. If you prepare your own taxes, use Form 8949 to track your capital gains and losses for long-term investments.
Finally, when in doubt, consult a professional. When it comes to taxes, you’re always better off safe than sorry.