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Monday, Dec. 14, 2020

Reviewing Your Investments

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2020 year-end tax planning for your portfolio

The year 2020 is finally coming to an end, and it is time to start looking forward to 2021. However, it would be wise to look at your investment portfolio before the end of the year for potential taxsaving opportunities. Start by reviewing the various sales you have realized this year on stocks, bonds and other investments. Then review what is left and determine whether these investments have an unrealized gain or loss. (Unrealized means you still own the investment, versus realized, which means you have sold the investment.)

Know your basis. To determine if you have unrealized gains or losses, you must know your investment’s tax basis, which is the cost of the investment when you bought it. This is generally simple to calculate, but it can become more difficult with investments that are reinvesting dividends and/or capital gain distributions. Make sure you consider these to calculate your cost basis properly.

Consider loss harvesting. If your realized capital gains are larger than your losses, you may want to do some “loss harvesting.” This means selling certain investments that will generate a loss. You can use an unlimited amount of capital losses to offset capital gains. Even if you do not have any realized capital gains, you can use up to $3,000 ($1,500 if married filing separately) of net capital losses that can offset other income, such as wages, interest and dividends. Any remaining unused realized capital losses can be carried forward into future years indefinitely.

Be aware of the “wash sale” rule. If you sell an investment at a loss and then buy it right back, the IRS disallows the deduction. The “wash sale” rule says you must wait at least 30 days before buying back the same security to be able to claim the original loss as a deduction. The deduction is also disallowed if you bought the same security within 30 days before the sale. However, while you cannot immediately buy a substantially identical security to replace the one you sold, you can buy a similar security, perhaps a different stock, in the same sector. This strategy allows you to maintain your general market position while utilizing a tax break.

Always double-check brokerage firm reports. If you sold a security in 2020, the brokerage firm reports the basis on an IRS Form 1099-B in early 2021. Unfortunately, sometimes there could be problems when reporting your information, so you should doublecheck these numbers to make sure that the basis is calculated correctly and does not result in a higher tax amount than you need to pay.

Hunter Greene, CFP®, JPJ Investments, 3201 Dee St., Shreveport, LA 71105. 318-222-8999. Securities and investment advisory services offered through Royal Alliance Associates Inc. (RAA), member FINRA/SIPC. RAA is separately owned, and other entities and/or marketing names, products or services referenced here are independent of RAA. Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Federal tax laws are complex and subject to change. This information is not intended to be a substitute for specific individualized tax or legal advice. Neither RAA, nor its registered representatives, offer tax or legal advice. Consult with your tax or legal counsel for advice specific to your situation.

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