TOO LATE for Tax Loss Harvesting??

[toothbrush17]

Hi everyone, really excited to be part of this community.

I just read the MadFientist's article on Tax Loss Harvesting. I have a 403b and a Roth IRA but not a taxable brokerage account; I have a sizable amount of savings. If I put my savings (minus emergency fund) into a brokerage account, can I still claim a tax loss for the 2018 tax year? (assuming the market continues to drop)

[FIREball567]

Before considering a taxable account, did you max out your 403b and IRA for the year? If you did, you can max out your 2019 IRA contributions ($6k) in January.


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[toothbrush17]

Before considering a taxable account, did you max out your 403b and IRA for the year? If you did, you can max out your 2019 IRA contributions ($6k) in January.


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My mistake, I should have clarified.

Maxed out 403b. Going to contribute $5.5k to Roth via backdoor.

If I put my savings in a taxable brokerage account, can I still harvest losses for 2018 tax year since there's less than 2 weeks remaining?

[terran]

I mean, yeah, you can -- that's not really the goal of investing though :-)

That said, as long as this is money you want to invest either way and you've used up tax advantaged space then putting it in taxable is the way to go. If you happen to have a loss then harvesting the loss and reinvesting in something that isn't substantially identical is a good idea. You can claim up to $3000 of loss against ordinary income.

This is dividend season, so be sure you understand what will happen for the investment you plan to buy. "Buying the dividend" would be counterproductive to your purposes as it would create a taxable event with no real gain as the value of the investment will drop commensurate with the value of the dividend, and you'd be taxed on the value of the dividend. Try to buy after the record date. 

[toothbrush17]

I mean, yeah, you can -- that's not really the goal of investing though :-)

That said, as long as this is money you want to invest either way and you've used up tax advantaged space then putting it in taxable is the way to go. If you happen to have a loss then harvesting the loss and reinvesting in something that isn't substantially identical is a good idea. You can claim up to $3000 of loss against ordinary income.

This is dividend season, so be sure you understand what will happen for the investment you plan to buy. "Buying the dividend" would be counterproductive to your purposes as it would create a taxable event with no real gain as the value of the investment will drop commensurate with the value of the dividend, and you'd be taxed on the value of the dividend. Try to buy after the record date.

I apologize but I'm a bit lost by what you just said. Can you please clarify?

[terran]

I mean, yeah, you can -- that's not really the goal of investing though :-)

That said, as long as this is money you want to invest either way and you've used up tax advantaged space then putting it in taxable is the way to go. If you happen to have a loss then harvesting the loss and reinvesting in something that isn't substantially identical is a good idea. You can claim up to $3000 of loss against ordinary income.

This is dividend season, so be sure you understand what will happen for the investment you plan to buy. "Buying the dividend" would be counterproductive to your purposes as it would create a taxable event with no real gain as the value of the investment will drop commensurate with the value of the dividend, and you'd be taxed on the value of the dividend. Try to buy after the record date.

I apologize but I'm a bit lost by what you just said. Can you please clarify?

Sorry, which part?

[MustacheAndaHalf]

Since terran helped explain something in another thread, let me try to repay by hopefully explaining something to someone else...

Let's say you buy $1000 of something that's about to have a 0.5% dividend.  As you receive the $5 dividend, the value of the $1000 worth of shares drops to $995.  It was worth $995 + $5 dividend before the dividend was issued, and once you have that $5 dividend, the remaining assets are worth $995.

And then you sell the the assets.  The $5 dividend is taxable as ordinary income tax (since you're not waiting 60 days), and if nothing else happens your $995 sale will have a $5 short-term capital loss.  It's a bit of a wash.... (sorry for that, terran :)

But if those assets fall further, then you might benefit from losses other than the amount of the dividend.  But what happens if it still goes up?  Then you pay tax on the dividend, which is where "buying the dividend" comes from.  It might be better to wait for dividends to be issued, and then buying after that.

[terran]

Since terran helped explain something in another thread, let me try to repay by hopefully explaining something to someone else...

Let's say you buy $1000 of something that's about to have a 0.5% dividend.  As you receive the $5 dividend, the value of the $1000 worth of shares drops to $995.  It was worth $995 + $5 dividend before the dividend was issued, and once you have that $5 dividend, the remaining assets are worth $995.

And then you sell the the assets.  The $5 dividend is taxable as ordinary income tax (since you're not waiting 60 days), and if nothing else happens your $995 sale will have a $5 short-term capital loss.  It's a bit of a wash.... (sorry for that, terran :)

But if those assets fall further, then you might benefit from losses other than the amount of the dividend.  But what happens if it still goes up?  Then you pay tax on the dividend, which is where "buying the dividend" comes from.  It might be better to wait for dividends to be issued, and then buying after that.

Yes, lets not confuse this with "Wash sales" which as we know are a thing when it comes to tax tax loss harvesting, but thanks for explaining with numbers what I was trying to say :-)

[toothbrush17]

Sorry, which part?

It was regarding the "dividend season" but MustacheAndaHalf helped explaining to me.

Since terran helped explain something in another thread, let me try to repay by hopefully explaining something to someone else...

Let's say you buy $1000 of something that's about to have a 0.5% dividend.  As you receive the $5 dividend, the value of the $1000 worth of shares drops to $995.  It was worth $995 + $5 dividend before the dividend was issued, and once you have that $5 dividend, the remaining assets are worth $995.

And then you sell the the assets.  The $5 dividend is taxable as ordinary income tax (since you're not waiting 60 days), and if nothing else happens your $995 sale will have a $5 short-term capital loss.  It's a bit of a wash.... (sorry for that, terran :)

But if those assets fall further, then you might benefit from losses other than the amount of the dividend.  But what happens if it still goes up?  Then you pay tax on the dividend, which is where "buying the dividend" comes from.  It might be better to wait for dividends to be issued, and then buying after that.

Thanks for the clarification! Can you explain the part in bold?

[wbranch]

I mean, yeah, you can -- that's not really the goal of investing though :-)
 

I think this is the part you should read again. Are you going to keep this money invested or put it back into savings after you get your losses? If you get the max 3k loss you would save $900 in taxes if your marginal rate is 30% and be out the 2,100. Tax loss harvesting is part of the overall after tax investing plan, not a way to get tax deductions for the sake of tax deductions. Don't let the tax tail wag the dog.

[toothbrush17]

I mean, yeah, you can -- that's not really the goal of investing though :-)
 

I think this is the part you should read again. Are you going to keep this money invested or put it back into savings after you get your losses? If you get the max 3k loss you would save $900 in taxes if your marginal rate is 30% and be out the 2,100. Tax loss harvesting is part of the overall after tax investing plan, not a way to get tax deductions for the sake of tax deductions. Don't let the tax tail wag the dog.

Perhaps I should have specified my original post. I have a chuck of savings that I was going to invest in an index funds anyways. I would of course want the market to go up but in the event that it doesn't (like now), I was trying to see if I can at least make the best of a bad situation and lower my taxable income before the 2018 tax year closes.

[MustacheAndaHalf]

Mutual funds send out a notification of their planned date for a dividend.  Some funds issue dividends quarterly, and others have a different schedule.  Especially in the last month of the year, it's worth checking the date of the dividend (the dividend date).

To keep things simple, if you purchase a fund after the day it issues the dividend, you can't receive the dividend.  If you want to push things a little further, I think the day before the dividend is issued is called the "ex-dividend date".  You might be able to buy the day before the dividend and not receive the dividend - but I haven't tested this myself.

Think of this as selecting from two possible scenarios, where it's assumed the stock price doesn't move:

a $20/share asset will issue a $5 dividend.  You buy one share for $20, and then receive a $5 dividend.  The stock is now $15/share, and you use your $5 dividend to buy 0.33 shares.  You own 1.33 shares, and owe tax on a $5 dividend.

Or, you wait for everyone else to get their dividends, then you buy.  You spend $20 on an asset that costs $15/share, so you buy 1.33 shares.  You own 1.33 shares, and do not owe any tax.