18 Jan Should I sell losing investments for help on my tax return?

Q. I make $70,000 per year and plan to take the standard deduction. Does it make sense to harvest tax losses?
— Taxpayer

A. Unfortunately, any moves you make with your investments in tax year 2023 won’t help you with your 2022 tax return.

You mention what’s known as tax loss harvesting.

Tax loss harvesting is a strategy investors use to lower their current federal taxes by taking a loss on an investment, said Joseph Sarnecki, a certified financial planner with U.S. Financial Services in Fairfield.

“While this is typically looked at during year-end planning, it is not restricted to that, and can be extremely useful throughout the year,” he said. “These losses can only come from within a taxable account, not an IRA or 401(k).”

In order to tax-loss harvest, a loss must be realized. In other words, you have to actually sell the security at a loss, Sarnecki said. You can deduct this loss against any other gains you may have realized during that tax year, he said.

“After offsetting any other realized gains, if you still have losses, the IRS allows you to reduce your taxable income by $3,000 of those losses,” he said. “Any unused losses can be carried forward to offset future gains.”

Given that this is reducing your taxable income, whether you take a standard deduction or itemize, tax loss harvesting can be a useful strategy and assist in lowering your overall tax bill, he said.

Consider meeting with a tax advisor who can look at your personal details to see how this strategy might be helpful to you.

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This story was originally published on Jan. 18, 2023.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.