While the Thanksgiving Holiday provides us a wonderful opportunity to enjoy the company of family and friends in an atmosphere of gratitude, one thing you should not forget to be thankful for are your unrealized investment losses. While this may sound strange, losses in your taxable portfolio may actually be of significant value to you. In order to unlock this value, a simple procedure called tax loss harvesting must be used. Tax loss harvesting is a process that consists of looking through your taxable portfolio and searching for unrealized investment losses. Once the positions are identified, they are sold so that the resulting loss will be recognized and can be used to offset any realized capital gains for the year. Once all capital gains have been offset, an additional $3,000 of capital losses can be used to reduce your ordinary income tax liability. Tax loss harvesting is an effective way to manage a portfolio with the goal of maximizing after-tax gains, and should be used in most taxable portfolios.
In a year like 2017, where current year gains have been significant and broad, and this followed a strong 2016, it may be difficult to find losses to harvest, but certainly not impossible. Some portfolios will lend themselves to tax loss harvesting more so than others. For example, a portfolio consisting of numerous individual equities will likely have potential harvesting opportunities in it while a portfolio consisting of mutual funds may find it more difficult to identify those same opportunities. This makes sense when you consider that a typical mutual fund portfolio averages 8 equity mutual fund holdings compared to an individual equity portfolio that can hold hundreds of different equities. The probability that you will own some losses is greatly increased with more holdings. Regardless of the type of portfolio you own, the most important thing is to check it for any harvesting opportunities.
Now is an ideal time to review your portfolio and determine if there are any tax loss harvesting opportunities. Mitigating capital gains can save you significant money come tax time. Additionally, a $3,000 offset to your ordinary taxable income can act as an additional deduction that you are not currently claiming. If you are an advisory client of Net Worth Advisory Group this process is already underway for you and your advisor will communicate with you directly about it. If you are not an advisory client but would like a fee-only advisor at Net Worth to review your portfolio for any potential opportunities, feel free to schedule an appointment by calling 801-566-6639, or visiting our website at www.networthadvice.com.