Anyone not bother with Tax Loss Harvesting?

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Cranberry44
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Anyone not bother with Tax Loss Harvesting?

Post by Cranberry44 »

Are there are any Bogleheads that don't worry about TLH?

I'm new to the forum (after about a year of part-time lurking), and I've read a lot about TLH here. Because I'm so new to investing, TLH honestly seems pretty intimidating to me. I've only read threads that imply TLH as the norm, or as a given, so, I'm wondering if there are any good reasons for not bothering with TLH at all?

Thanks! :happy
Last edited by Cranberry44 on Fri Jun 05, 2020 1:04 pm, edited 1 time in total.
livesoft
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Re: Anyone not bother with Tax Loss Harvesting?

Post by livesoft »

One reason to not bother with it is that one does not have any taxable account investments and only tax-advantaged investments.
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Chrono Triggered
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Re: Anyone not bother with Tax Loss Harvesting?

Post by Chrono Triggered »

If your losses aren't that much, either in terms of dollars, or percentage down.
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Cranberry44
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Re: Anyone not bother with Tax Loss Harvesting?

Post by Cranberry44 »

livesoft wrote: Fri Jun 05, 2020 1:04 pm One reason to not bother with it is that one does not have any taxable account investments and only tax-advantaged investments.
Good point -- my question, then, should be directed to those with a taxable account. Thank you for the clarification, livesoft.
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BrandonBogle
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Re: Anyone not bother with Tax Loss Harvesting?

Post by BrandonBogle »

Cranberry44 wrote: Fri Jun 05, 2020 1:03 pm Are there are any Bogleheads that don't worry about TLH?
In my case, absolutely not (to your question). I TLH on occasion when I have a decent size loss (like $5k or more) and enjoy applying the losses against my current nominal tax rate. My current setup has me planned to be close to potentially no taxes in retirement.
stan1
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Re: Anyone not bother with Tax Loss Harvesting?

Post by stan1 »

If you are 70 and have $1,000,000 and a $1,000 loss living on SS and dividend income then it probably doesn't matter much.

If you are 40 and have $250,000 and a $125,000 loss and are in a federal/state 40%+ marginal tax rate it can make a bigger difference.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by inverter »

Ha... I tried to do it for a first time and totally screwed up! I thought it was only for the 30 days following the transaction, and not a 60 day period -- 30 before, 30 after.

Sold some VTSAX around early April that had losses, but I had placed 3 rounds of orders in March as the market fell. Was a wash transaction, but as I understand it, the losses get added to subsequent transactions automatically.

Will be more careful next time I go to do it! All isn't lost though... my birthday is in April and the amount I sold was almost the exact amount I needed to rebalance from VTSAX into VTIAX.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by samsoes »

I was tempted but didn't since I am first-year ACA and am doing a balancing act to keep my MAGI in the sweet-spot to maximize premium tax credits. I didn't want to complicate things, and I'm going to be in a very low tax bracket anyway.
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Cranberry44
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Re: Anyone not bother with Tax Loss Harvesting?

Post by Cranberry44 »

stan1 wrote: Fri Jun 05, 2020 1:09 pm If you are 70 and have $1,000,000 and a $1,000 loss living on SS and dividend income then it probably doesn't matter much.

If you are 40 and have $250,000 and a $125,000 loss and are in a federal/state 40%+ marginal tax rate it can make a bigger difference.
Ah -- good point. I'm 31 and my biggest loss so far has been about $100 (obviously I don't have too much invested so far...).

I suppose the more nuanced version of the question should be "At what amount/percentage of loss should TLH be considered?"
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wander
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Re: Anyone not bother with Tax Loss Harvesting?

Post by wander »

No, I am not doing TLH now since I don't have any loss to harvest with this current market. I did it in March and April and it will take me a long time to claim it. :D
livesoft
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Re: Anyone not bother with Tax Loss Harvesting?

Post by livesoft »

I want to point out that TLH can help people avoid Loss Aversion. There is a psychological benefit to clearing out the red numbers from one's account and starting each new year with only black numbers and gains.
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stan1
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Re: Anyone not bother with Tax Loss Harvesting?

Post by stan1 »

Personally I would not worry about a $100 loss. $3,000, yes. $1,000, maybe if it was easy to transact.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by redmaw »

The benefits of TLH for the average person are overstated here. First it only applies to taxable investments. If all of your investments are in a 401k or IRA, move on it doesn't even apply.

If you are in a lower income bracket (as most outside of BH are) especially in the 0% long term cap gains rate, there is very minimal benefit, and actually a potential determent from it. Note that if you follow boglehead approved investment order you are unlikely to both have taxable investments and a low income bracket.

The only ways the loss can be used is by offsetting future capital gains (which has to come first if there are any, its not optional), and if anything is left over up to $3000/yr in normal income. At 12% that $360/yr max benefit. However its entirely possible to TLH, lower the basis of your investments and then have the entire loss offset by a separate future transaction with capital gains that would have otherwise been taxed at 0% anyway. Netting you nothing but a lower cost basis, which may incur taxes in the future.

State taxes can make it worse. My state doesn't allow losses to carry over to the next year, so that lower cost basis is guaranteed to cost me more in state taxes in the future, whether it offsets income on the federal form or not.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by flossmoor »

Make sure you are not harvesting a low-bracket loss now and keeping higher-bracket capital gains for later.

Depends on your age, when/if you are going to retire, how much in losses you are talking about, what you think future tax brackets/tax law changes are going to be, etc.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by mbasherp »

redmaw wrote: Fri Jun 05, 2020 1:22 pm The benefits of TLH for the average person are overstated here. First it only applies to taxable investments. If all of your investments are in a 401k or IRA, move on it doesn't even apply.

If you are in a lower income bracket (as most outside of BH are) especially in the 0% long term cap gains rate, there is very minimal benefit, and actually a potential determent from it. Note that if you follow boglehead approved investment order you are unlikely to both have taxable investments and a low income bracket.

The only ways the loss can be used is by offsetting future capital gains (which has to come first if there are any, its not optional), and if anything is left over up to $3000/yr in normal income. At 12% that $360/yr max benefit. However its entirely possible to TLH, lower the basis of your investments and then have the entire loss offset by a separate future transaction with capital gains that would have otherwise been taxed at 0% anyway. Netting you nothing but a lower cost basis, which may incur taxes in the future.

State taxes can make it worse. My state doesn't allow losses to carry over to the next year, so that lower cost basis is guaranteed to cost me more in state taxes in the future, whether it offsets income on the federal form or not.
This is spot on.

In the 12% bracket, we are much better served by tax GAIN harvesting when we can in our taxable account.
Onlineid3089
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Re: Anyone not bother with Tax Loss Harvesting?

Post by Onlineid3089 »

We don't. Our taxable account isn't that big, so outside the last few months there's never been a loss worth doing anything with. I also have a monthly purchase scheduled so I believe I'd want to have it planned out well in advance to change that to avoid the wash sale issues as mentioned above.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by livesoft »

redmaw wrote: Fri Jun 05, 2020 1:22 pm If you are in a lower income bracket (as most outside of BH are) especially in the 0% long term cap gains rate, there is very minimal benefit, and actually a potential determent from it. Note that if you follow boglehead approved investment order you are unlikely to both have taxable investments and a low income bracket.

The only ways the loss can be used is by offsetting future capital gains (which has to come first if there are any, its not optional), and if anything is left over up to $3000/yr in normal income.
My situation is such that I am in a lower income bracket with a relatively large taxable investment, so it might be interesting to describe it:

We pay 0% LT cap gains tax rate nowadays. Our qualified dividend income also gets the 0% rate. My spouse is still working and last year had a 6-figure earned income, but because we can use our taxable investments to pay expenses, we can deduct and defer most of the 6-figure income for HSAs, health insurance, 401(k), and Roth IRAs. Those things allow us to get down to that 0% LTCG and 0% QDI tax rates. Furthermore, previous TLH carryover losses allow that additional $3,000 to be deducted from income. This has a few positive consequences: We are able to convert more of old traditional IRA assets to Roths AND we are able to have low enough AGI to benefit from significant tax credits. And we are able to make significant donations to charity, so that we can itemize deductions every other year and unload appreciated shares that have the highest percentage of LT capital gains.

Now this may be imaginative thinking for some folks, but I don't think we have to be that unusual among our fellow bogleheads.

Added: One more thing: When it comes to selling for a ST gain in our taxable investments, I don't even have to worry about that at all because the gain will be offset by some previous loss that I harvested. it really makes for worry-free rebalancing and sniping for a few extra dollars of investment gains.
Last edited by livesoft on Fri Jun 05, 2020 1:50 pm, edited 1 time in total.
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HootingSloth
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Re: Anyone not bother with Tax Loss Harvesting?

Post by HootingSloth »

Cranberry44 wrote: Fri Jun 05, 2020 1:13 pm
stan1 wrote: Fri Jun 05, 2020 1:09 pm If you are 70 and have $1,000,000 and a $1,000 loss living on SS and dividend income then it probably doesn't matter much.

If you are 40 and have $250,000 and a $125,000 loss and are in a federal/state 40%+ marginal tax rate it can make a bigger difference.
Ah -- good point. I'm 31 and my biggest loss so far has been about $100 (obviously I don't have too much invested so far...).

I suppose the more nuanced version of the question should be "At what amount/percentage of loss should TLH be considered?"
You can think of it in terms of how many dollars of tax liability you are actually going to save and whether that personally seems worth the effort (and maybe stress if you are new to it). The 40 year old in stan1's example may be saving $1,200+ in taxes for many years to come. Many of the Bogleheads who were tax loss harvesting in the past couple of months were in this situation, and it is not a lot of work to do to save $1,200 each year for many years to come. I agree with others who have said that a $100 loss is probably not worth it and to be more cautious if you are in a low bracket and especially if you might be able to get 0% capital gains rates.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by BrandonBogle »

livesoft wrote: Fri Jun 05, 2020 1:37 pm We pay 0% LT cap gains tax rate nowadays. Our qualified dividend income also gets the 0% rate. My spouse is still working and last year had a 6-figure earned income, but because we can use our taxable investments to pay expenses...
As a point of reference, I never did TLH until I read your $100k income with no tax thread. That helped me adjust some plans to hopefully reach the same point.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by runner3081 »

Admittedly, I don't do it.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by gmc4h232 »

redmaw wrote: Fri Jun 05, 2020 1:22 pm Note that if you follow boglehead approved investment order you are unlikely to both have taxable investments and a low income bracket.
I disagree with this. The examples that come to mind are folks who dont have access to a 401k or HSA at work, and tax savvy retirees.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by Massdriver »

I did it for the first time during the downturn and got some nice losses booked. It worked out since I wanted to simplify my portfolio a bit with funds from different indexes. I got to consolidate and I plan on using the losses against ordinary income for the next few years, $3000 per year last I checked.

If I like how it works, I'll likely do it again if the opportunity presents itself.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by cchrissyy »

no, you don't have to do it. TLH is not as important as the sheer number of threads about it would imply.

even if it would be positive in your particular situation it's only something good to know about and optional, not required.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by BrandonBogle »

cchrissyy wrote: Fri Jun 05, 2020 2:16 pm no, you don't have to do it. TLH is not as important as the sheer number of threads about it would imply.

even if it would be positive in your particular situation it's only something good to know about and optional, not required.
This I agree with. It’s a “nice to have” and not a “you just do this!”
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Re: Anyone not bother with Tax Loss Harvesting?

Post by dharrythomas »

Tax loss harvesting is great. It is not hard because the website tells you about gains/losses. I haven’t done it in years. I was watching to pull the trigger, but my big taxable investments were in 2016 and as bad as earlier this year was. Neither Total World and Tax Managed Balanced bought in that timeframe ever showed a loss. :D

Traders in taxable accounts generate much more Tax gains and tax losses than do most buy and hold investors.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by LilyFleur »

Some early retirees are looking at higher tax brackets as time goes by (401ks that have increased a great deal). In that case, why TLH now and postpone taxes to a higher bracket later on (both due to RMDs and the tax law reverting to previous, higher rates)?
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Re: Anyone not bother with Tax Loss Harvesting?

Post by cpan00b »

Someone correct me if I'm wrong, but is there a point if you have no capital gains to offset the loss with (or if you plan not to have any such gains in the forseeable future)? My understanding is that if you have no capital gains to offset, you can reduce your normal w2 taxable income each year by 3000. That doesn't seem like a big deal to me because even if you're in the 40% bracket, that's like $1200 of tax you save each year?

Edited to add: Actually, will it offset dividends in your taxable account? Do dividends count as capital gains?
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Re: Anyone not bother with Tax Loss Harvesting?

Post by wander »

cpan00b wrote: Fri Jun 05, 2020 3:00 pm Someone correct me if I'm wrong, but is there a point if you have no capital gains to offset the loss with (or if you plan not to have any such gains in the forseeable future)? My understanding is that if you have no capital gains to offset, you can reduce your normal w2 taxable income each year by 3000. That doesn't seem like a big deal to me because even if you're in the 40% bracket, that's like $1200 of tax you save each year?

Edited to add: Actually, will it offset dividends in your taxable account? Do dividends count as capital gains?
- Short-term losses counterbalance those expensive short-term gains. What’s left at the end of Part I of Form 8949 is the net short-term capital gain or loss. If there were no gains, then obviously the net would equal the total loss.
- Long-term losses are applied to long-term gains. The result, at the end of Part II of Form 8949, is the net long-term capital gain or loss. Again, if you have only a loss, then the net is a negative number.
- Next, you combine the short-term and long-term results on Schedule D. At this point, a loss in one section can offset a gain in the other section. For example, if you have a net short-term loss of $1,000 and a net long-term gain of $1,200, then you’ll pay tax on only $200.
- If there’s still a loss, you can deduct up to $3,000 from other income.
- If you had a really bad year and ended up with a net loss of more than $3,000, you can carry forward the leftover portion to next year’s taxes. The unused loss can be applied to next year’s gains, as well as up to $3,000 of earned income. A big loss can be used as a deduction indefinitely — another important reason to keep good records. ----- From Bankrate
heyyou
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Re: Anyone not bother with Tax Loss Harvesting?

Post by heyyou »

Yes, I do not TLH, but I have done those somewhat similar Roth conversions, annually for every year since early retirement.
In my low cost area, with the start of my delayed SS and my small pension, I am now a passive, passive investor.
Others are welcome to do whatever suits their situations.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by livesoft »

cpan00b wrote: Fri Jun 05, 2020 3:00 pmEdited to add: Actually, will it offset dividends in your taxable account? Do dividends count as capital gains?
DIvidends are ordinary income (unless from tax-exempt bonds) and do not count as capital gains.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by grabiner »

LilyFleur wrote: Fri Jun 05, 2020 2:59 pm Some early retirees are looking at higher tax brackets as time goes by (401ks that have increased a great deal). In that case, why TLH now and postpone taxes to a higher bracket later on (both due to RMDs and the tax law reverting to previous, higher rates)?
Tax loss harvesting won't affect either of these rates in most situations. If you harvest a loss and offset ordinary income now, you get a benefit at your current tax rate. The tax on the increased capital gain will be paid at the capital-gains tax rate, which will remain 15% for most investors even if the 2018 tax cuts expire. If the tax on your increased capital gain is the maximum possible 23.8%, then your loss now is almost certainly being taxed at a 35.8% or higher rate.

And retirees who will be forced to take large RMDs are likely not to need to sell from their taxable accounts at all. If the stock is left to your heirs or charity, the increased capital gain will be taxed at zero. (I am not yet retired, but I have already gotten rid of most of my TLH replacement shares from 2002 by donating them to charity, and will soon start getting rid of my 2008-2009 replacements.)
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Re: Anyone not bother with Tax Loss Harvesting?

Post by tennisplyr »

My tax rate is too low to worry about this, I'm basically on autopilot since retiring 9 years ago.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by iamblessed »

I don't do it unless my income goes above 400% FPL. If I did it this year my income would go to low and I would lose ACA help.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by MathWizard »

I don't bother, and don't expect to have to.

Only 5% of our savings is in a taxable brokerage account, and that is fairly recent,
and not currently in stocks because it is a 2nd tier EF during these troubling times.
The rest is all tax advantaged.

I have more to worry about than TLH. Once the pandemic ends, we will invest it
according to our normal AA.

Once I retire, (with 3 years) I expect to use the taxable money to live and
to pay the taxes on ROTH conversions up to the top of the 12/15% bracket.
This will limit taxing of my SS benefits, and avoid us or the surviving spouse
moving into the 22/25% bracket due to RMDs
Ken.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by Ken. »

I don't bother with TLH. Too much hassle with record keeping and worrying if you made a mistake. I like to keep things simple, and minimize my time doing taxes.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by go140point6 »

I do it, been great. Took me lots of reading (thanks @livesoft) and re-reading. I was 80% there and still hadn't tried it and then one day I literally had the epiphany (one of those weird times you find yourself sort of awake in the middle of the night and then suddenly completely awake) that gave me the other 20%... suddenly I just knew how to do it. The big dips in Oct 2018 and earlier this year worked out well for me.

Not to say I have been perfect... earlier this year I created a small wash due to my wife's IRA... totally my fault, but luckily it was very little for that particular exchange and was a good lesson (don't get cocky)... :beer
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Re: Anyone not bother with Tax Loss Harvesting?

Post by bgf »

I'm only ever that excited about TLH when the proceeds can be transferred to a tax benefited account. Otherwise, you're just delaying taxes (which is still nice) but not avoiding them.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by livesoft »

bgf wrote: Fri Jun 05, 2020 7:03 pm I'm only ever that excited about TLH when the proceeds can be transferred to a tax benefited account. Otherwise, you're just delaying taxes (which is still nice) but not avoiding them.
Even in this thread it was shown how taxes are avoided and not delayed, so why did you write that?
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Re: Anyone not bother with Tax Loss Harvesting?

Post by JonnyDVM »

Don’t bother? It’s a $3000 tax deduction annually for mere seconds of effort. Seriously, I can put in a sell and buy order in seconds from my phone. How does that qualify as a bother?
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Re: Anyone not bother with Tax Loss Harvesting?

Post by JBTX »

Cranberry44 wrote: Fri Jun 05, 2020 1:03 pm Are there are any Bogleheads that don't worry about TLH?

I'm new to the forum (after about a year of part-time lurking), and I've read a lot about TLH here. Because I'm so new to investing, TLH honestly seems pretty intimidating to me. I've only read threads that imply TLH as the norm, or as a given, so, I'm wondering if there are any good reasons for not bothering with TLH at all?

Thanks! :happy
I never have and never did. At this point most of my investments are in retirement accounts, but even when I had taxable investments I just used average cost and depleted when I needed it. In the grand scheme of things over the decades maybe I paid a couple of thousand of taxes that could have been avoided by TLH. No regrets at all. The impact is probably rounding error.

While I don't dismiss some who are very diligent and deliberate may defer taxes or even save some, IMHO it is one of the least important strategies to worry about.

Having said all that, if I had a large taxable portfolio if the markets moved in a big way I might TLH selectively. Especially if you are at or near 7 figures. But my taxable was never large enough to worry.

I have seen other newcomers here feel reticent to get started with a plan because they are intimidated by tax loss harvesting, or whether bonds should be in taxable or tax deferred, or how to most effectively balance a three or more fund portfolio. Save as much as you can, fund as much retirements as you reasonably can, strive long term for both Roth and traditional, put your money in low fee target dates or lifestrategy funds, and have an EF/liquidity fund, and you are at least 95% of the way there.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by livesoft »

JonnyDVM wrote: Fri Jun 05, 2020 7:33 pm Don’t bother? It’s a $3000 tax deduction annually for mere seconds of effort. Seriously, I can put in a sell and buy order in seconds from my phone. How does that qualify as a bother?
You mean you can TLH in less time and hassle than it took to post your comment?
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Re: Anyone not bother with Tax Loss Harvesting?

Post by eye.surgeon »

If someone offered you a $3000 tax deduction for 15 minutes of thought and effort , would you do it? I would and I do. For those in high tax brackets with large taxable accounts it’s foolish not to.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by bgf »

livesoft wrote: Fri Jun 05, 2020 7:27 pm
bgf wrote: Fri Jun 05, 2020 7:03 pm I'm only ever that excited about TLH when the proceeds can be transferred to a tax benefited account. Otherwise, you're just delaying taxes (which is still nice) but not avoiding them.
Even in this thread it was shown how taxes are avoided and not delayed, so why did you write that?
I guess because its how I feel. I tax loss harvest whenever possible and am most happy when it allows me to contribute to tax benefitted accounts sooner than I otherwise would...

When that's not the case those funds stay in my taxable account with a lower basis...
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Re: Anyone not bother with Tax Loss Harvesting?

Post by JonnyDVM »

livesoft wrote: Fri Jun 05, 2020 7:45 pm
JonnyDVM wrote: Fri Jun 05, 2020 7:33 pm Don’t bother? It’s a $3000 tax deduction annually for mere seconds of effort. Seriously, I can put in a sell and buy order in seconds from my phone. How does that qualify as a bother?
You mean you can TLH in less time and hassle than it took to post your comment?
Yes. Because I often have to come back and edit because I’m a terrible phone typist.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by BrandonBogle »

bgf wrote: Fri Jun 05, 2020 9:22 pm
livesoft wrote: Fri Jun 05, 2020 7:27 pm
bgf wrote: Fri Jun 05, 2020 7:03 pm I'm only ever that excited about TLH when the proceeds can be transferred to a tax benefited account. Otherwise, you're just delaying taxes (which is still nice) but not avoiding them.
Even in this thread it was shown how taxes are avoided and not delayed, so why did you write that?
I guess because its how I feel. I tax loss harvest whenever possible and am most happy when it allows me to contribute to tax benefitted accounts sooner than I otherwise would...

When that's not the case those funds stay in my taxable account with a lower basis...
I am thoroughly confused bgf about your account setup. Harvesting a tax loss lets you transfer funds to a tax-advantaged account? Huh. The only thing I can think of with this is you aren't maxing out your 40xx, IRA, HSA, space but you are putting funds in taxable? If that is the case, could you elaborate as to why please? Or maybe I'm completely off base here.
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grabiner
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Re: Anyone not bother with Tax Loss Harvesting?

Post by grabiner »

bgf wrote: Fri Jun 05, 2020 7:03 pm I'm only ever that excited about TLH when the proceeds can be transferred to a tax benefited account. Otherwise, you're just delaying taxes (which is still nice) but not avoiding them.
If you aren't maxing out your tax-advantaged accounts, it is almost always worth selling in your taxable account, even for a capital gain, in order to get the benefit of tax deferral. If you bought stock for $4000 which is now worth $6000, and you sell it, you lose 5% of the value to taxes, but you can put $5700 in a Roth IRA and never lose anything more to taxes, or $5700 after tax in a 401(k) which is just as good if you retire in the same tax bracket. If you keep the stock in your taxable account, you will lose more than 5% of the total value to taxes. (Even if you leave the stock to your heirs and avoid the capital gain, you will probably lose more than 5% to taxes on the dividends before you die.)
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millennialmillions
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Re: Anyone not bother with Tax Loss Harvesting?

Post by millennialmillions »

I disagree with most of the posts so far. Tax loss harvesting makes a significant difference, and I think it is actually under-discussed relative to its impact.

This study from First Quadrant analyzes the impact of tax loss harvesting on a portfolio’s value over time. They simulated holding the S&P 500 (individually, not indexed) over 25 years and compared a perfect tax loss harvested vs. a straight buy-and-hold approach. The TLH portfolio ended up 14% larger after factoring in the additional deferred taxes.

Note that simulation used individual holdings rather than an index, so the practical benefit will be smaller but still significant.

Tax loss harvesting is actually very quick and easy after you invest the initial time to understand it. Here is a guide I wrote to try to make it as easy as possible, including step-by-step walkthroughs with screenshots for both Vanguard and Fidelity.
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Re: Anyone not bother with Tax Loss Harvesting?

Post by 1130Super »

I’m more of a Tax gain harvester up to end of 0% cap gains bracket
Ztx
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Re: Anyone not bother with Tax Loss Harvesting?

Post by Ztx »

What are other meaningful benefits beyond the $3,000 deduction , unless you:
A) plan to donate appreciated shares
B) plan to leave significant amount as inheritance (for cost basis reset) and have some other capital gains to offset (like a sale of business)?

Isn’t it just reducing cost basis and I’ll end up paying the same long term cap gain rate later anyways?
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grabiner
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Re: Anyone not bother with Tax Loss Harvesting?

Post by grabiner »

Ztx wrote: Fri Jun 05, 2020 10:29 pm What are other meaningful benefits beyond the $3,000 deduction , unless you:
A) plan to donate appreciated shares
B) plan to leave significant amount as inheritance (for cost basis reset) and have some other capital gains to offset (like a sale of business)?

Isn’t it just reducing cost basis and I’ll end up paying the same long term cap gain rate later anyways?
You may also offset future capital gains resulting from events after the harvest. This results in postponing the capital-gains tax to a later year, letting you invest the money. And if that later year is after you retire, you might pay tax at a lower rate. You may offset short-term gains with capital losses, later realizing long-term gains, and thus pay tax on the same amount years later at a lower rate.

I harvested capital losses in 2008-2009, and still have not used up my carryover losses, from those and other years (with a lot more added in 2020).

In 2010 and 2011, I held ETFs which distributed capital gains. These gains were offset by the carryover losses, so I postponed the tax due on the capital gain until the time that my carryover losses run out and I have taxable capital gains.

In 2013, I sold stock to make a down payment on a home. With the market at a peak, I had capital gains on all my stock at that time. I sold shares purchased in 2012 for a capital gain, but owed no federal tax because I had offsetting losses. Without the carryover, I would have paid capital-gains tax on these shares in 2013; instead, I have delayed paying the tax until my carryover losses run out.

In 2017, I sold stock to buy a car, rather than taking out a loan. I sold shares purchased in 2016 for a short-term gain because those were the shares with the lowest gain; I avoided the tax by offsetting it with carryover losses. Without carryover losses, I would have either sold those shares and paid 24% rather than 15% federal tax on the gain, or sold older shares and paid 15% tax on a much larger gain.

Thus, in all three of these examples, I would have benefited even if I had to carry over all my capital losses, rather than being allowed to take $3000 per year against ordinary income.
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