Page 8 - Miami Vol 7 No 1

Wealth Management
Tax Harvesting at Year End
BWy Gene Sulzberger
ith the run up in the stock market over the past few years there are hopefully some hefty long-term un-
realized gains in your investment port- folio.
One of the checklist tax items on many taxpayer’s end of year lists is to look at their overall realized capital gains and/or losses and see if it makes sense to o set these by selling any securities before the year ends. is process is called tax har- vesting – turning unrealized long-term capital gains or losses into realized capital gains or losses for tax purposes.
For many investors, tax gain/loss har- vesting is a vital tool for reducing taxes, both now and in the future. Not only can it help save you on taxes, but it can help you diversify your portfolio.
A prime example of tax harvesting is where you have a loss on Security X which can be sold to o set the increase in value of Security Y (if sold), thus eliminating or
For many investors, tax gain/loss harvesting is a vital tool for reducing taxes, both now and in the future.
greatly reducing the capital gains tax liabil- ity for Security Y.
Capital gains taxes can either be short term or long term. If you sell an appreci- ated security within one year ... the capital gains tax rate on that asset will be the same as your regular income tax rate. e high- est income tax brackets are 28 percent, 33 percent, 35 percent and 39.6 percent.
However, if you wait more than a year to sell that appreciated security, your capital gains tax rate on that asset will be 20 per- cent, much lower than the aforementioned income tax brackets.
One guideline to remember is that short- term and long-term losses have to o set gains of the same type. is rule can be ig- nored though if your losses exceed the type of gains you are trying to cancel out. en you can apply those excess losses to the other types of gains that have not been o set yet.
Tax harvesting by selling assets to mini- mize capital gains taxes also can provide you with the necessary cash to reinvest se- curities in other areas to provide you with some added diversi cation. Trimming the amount you have invested in an overly ap- preciated asset can provide you with the opportunity to diversify into another area of the market to help reduce your overall potential volatility.
Another way to minimize the capital gains taxes you may owe is to sell securi- ties in years when your income takes a dip, especially if you have securities held short term. If you are in a lower income tax bracket, then the capital gains tax rate charged will not be as high.
By the way, if you are in the 10 percent or 15 percent tax bracket, the long-term capital gains tax rate is 0 percent. In 2017, married couples ling jointly with taxable income of up to $75,900 are eligible for the 0 percent long-term capital gains tax rate. Singles with taxable income of up to $37,590 also get the 0 percent long-term capital gains tax rate. Be aware that the 0 percent capital gains rate applies only to the degree that your gains do not push you into the 25 percent bracket. In those states
with state income taxes, realize that the state may still tax your pro ts, even if the IRS gives you a savings.
If your losses exceed your gains (or you have no gains), you can use your losses to o set up to $3,000 in ordinary income. Unused losses can be carried over to future years.
Another strategy to keep in mind with appreciated assets is to gi appreciated assets to someone who quali es for the 0 percent capital gains rate, such as a young adult or an elderly parent. e recipient can then sell the security capital gains tax free. In 2017, you can gi up to $14,000 in cash or other assets to as many people as you like without having to le a gi tax return.
Also, if you are charitably inclined, gi - ing appreciated assets can save you from having to pay capital gains taxes. It is o en more tax e cient to gi the appreciated asset than to sell the asset and then con- tribute cash.
Be aware that if you are receiving Social Security bene ts, any realized capital gain may increase the amount of your Social Security that is taxed.
Also, if you hold securities for less than 61 days and receive quali ed dividends from those shares, they no longer are con- sidered quali ed dividends.
I recommend that tax harvesting be part of your annual discussions with your ac- countant. Understand if you have any car- ry forward losses from previous years that can be used to o set any gains. ere is no need to pay unnecessary taxes if you take the time to review your investments and understand the tax implications.
Gene C. Sulzberger is president of Sulz- berger Capital Advisors, a registered invest- ment advisory rm in Miami. He works with U.S. and international clients, helping them meet their wealth management goals. Gene is a CERTIFIED FINANCIAL PLANNERTM and a registered trust and estate practitio- ner (TEP). He has his Juris Doctor and previ- ously practiced law in the area of trust and estate planning. He has over 20 years of ex- perience in nancial services and planning. Gene can be reached at (305) 573-4900 or [email protected].
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