Pulling One over on Uncle Sam, The Finale

Last week was my 10-year anniversary, so we gave Uncle Sam a break. 

The two weeks prior to that we learned that if we sell at a loss, we can use that loss to offset gains elsewhere  OR use it for up to a $3,000 tax deduction per year until it's all used up

Over the long-term (10+ years), your portfolio will grow.   Over shorter time periods, it will be up or down.   But when it's down, it never stays down.  So you want to take advantage of the temporary downturns by realizing losses (aka selling). 

Uncle Sam's not as dumb as he looks.  He won't let you sell to realize the loss, then turnaround and buy it right back.  If you buy the exact same thing back within 30 days, it's called a "wash sale" and Uncle Sam will pretend like you never sold anything in the first place.

The problem is that you always want to stay 100% invested. 

You just sold your red delicious apples and while you're waiting 30 days to buy them back, apples really take off.  They're up 10% in a month and you missed it.  Saving on taxes will be a small consolation.

The key - and very technical - term is "exact same thing".  

Instead you sell red delicious, realize the loss and immediately buy granny smiths.  You'll still be invested if apples skyrocket this month, and meanwhile Uncle Sam won't care since they're not exactly the same. 

Pretty cool, right? 

As for investments, you can sell your Vanguard S&P 500 fund, realize the loss and immediately buy the iShares S&P 500 fund.    As far as you're concerned, they're the exact same investment.    As far as Uncle Sam is concerned, they’re not.  Because they are from different investment companies, it won't trigger the wash sale rule.

Tax loss harvesting is like checking your credit report every year.   You know you should, but you never seem to get to it.   Working, raising a family and occasionally relaxing get in the way of harvesting your tax losses.   

Wouldn't it be nice if you knew someone who could do that for you?   Then you could live your life AND pull one over on Uncle Sam.

Oh wait!  I heard somewhere that The Financial Zen Group does this for people.   Maybe you should check em out!  - www.financialzen.com

Disclaimer: This publication is for educational purposes only and should not be considered financial, tax or legal advice.  These statements have been simplified for illustration purposes.  Consult your financial planner or tax advisor for help with your specific situation.