Harvesting Gains and Losses (No Prior Farming Experience Needed)

You may have zero interest in agriculture, but trust me when I say that anyone with a taxable investment account should be thinking about harvesting – gain/loss harvesting, that is. You can safely ignore gains/losses in tax-qualified retirement accounts – like your IRA and 401k. Those accounts are only taxed based on withdrawals, not on gains realized within the account. However, if you have non-qualified accounts (i.e., individual, joint, trust, UTMA), then roll up your sleeves: you might have some harvesting to do prior to year-end. What Exactly Is Harvesting Anyway? If your investment grows to be worth more than the price you paid for it, you have an unrealized gain. But just like a vegetable provides zero nutritional value until it’s harvested, your unrealized capital gain is just a paper gain – hanging on the vine – until it is “harvested,” or realized, by means of a sale. Losses are treated the same way – the IRS doesn’t care about unrealized gains or losses – only those where an actual sale occurs are considered “realized” for tax purposes. How Gains Are Taxed Short-term gains (those with a holding period of one year or less) are taxed at ordinary income […]


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