This Strategy Will Go Stale in One Month

Folks, we’re officially in the final month of the year…

That means scores of investors are in the process of making a rookie mistake.

Next April, they’ll do their taxes. And they’ll realize they owe money to the government.

But the good news is that it might not have to be that way…

It all comes down to how you manage your losses. And more specifically, it involves getting the highest potential tax benefit out of those losses.

It’s easy to get excited about winning trades. We’re all happy to make money, after all.

But when it comes to losses…

Investors will do just about anything to avoid dealing with a losing trade. And often that means letting losing positions languish for months – or sometimes even years.

Fortunately, one solution is fairly straightforward. It’s called “tax-loss selling.”

In short, it’s time for us to crunch the numbers and see how much we expect to owe in taxes. With that knowledge, we can take some strategic losses to decrease our tax burden.

And interestingly, this year presents a special opportunity for tax-loss selling…

No one needs me to tell them that 2022 was a brutal year in the markets. So like it or not, I’m sure some folks are sitting on some sizable losses right now.

If that’s you, don’t waste time being unsure about what to do or holding onto your losers even longer. Instead, use it as an opportunity to pay fewer taxes.

Start by checking your portfolios. Look for your year-to-date tax burden. A lot of brokerages will allow you to see that figure. But if you can’t easily find it, call and ask how to get it.

If your tax burden is positive (meaning you’ll owe capital-gains taxes), consider selling some of your larger, longer-term losers that you haven’t been sure how to handle. By doing that, you’ll owe less money in taxes.

If your tax burden is negative, you still want to be realistic…

Last December, I explained how a 20% loss takes a 25% gain to get back to breakeven. So is there a realistic shot that the stock will rebound like that? If not, cut your losses.

I know it hurts to realize losses. But it’s always good to avoid paying the government more than needed. That’s why this strategy is great to remember if you’re sitting on some losers.

And please note… if you’re unsure about how to handle any of your investments, call your tax preparer. They’ll ensure that you’re making the most tax-effective decisions you can.

The bottom line is simple…

Clean up your portfolios while you still can. Don’t obsess about your losers. Instead, use the opportunity to decrease your tax burden.

This time of year, tax-loss selling is your friend.

Good investing,

Karina Kovalcik

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