End of year tax planning for 2016

With the end of the year coming up quickly I decided to sell a couple of companies that I have losses in and buy them back in early January to lock in those losses. Buying back the same stock is possible if you wait over 30 days to buy it back. You could buy back a similar equity if it is not substantially the same, per IRS rules.

This means that if you own, let’s say, a small cap ETF from one company that you sell, you could buy back immediately a small cap ETF from a different company. In fact, this is how many of the roboinvesting platforms perform their regular tax lost harvesting. By doing it this way you really don’t lose out on anything since the new ETF has also likely traded pretty much in line with the one you’ve decide to sell. But for a single stock, you have to wait out the 30 days.

I’ve decided to do this now since some of these stocks have increased along with the general market since the election. I’m hoping that I can sell them near a relative short term “high” and then buy them back for slightly less. If not, the tax benefits will help either way. Since starting my new job I’ve jumped up a couple of tax brackets, which generally happens for good reasons (i.e., higher income), but it also means that I’ll be paying more in taxes per year than I made as a fellow!

The stocks that I’ve decide to sell are KKR, AMGN, and GILD. I have losses of around $1,000 in each of these. I sold KKR today, December 7th. I’m going to wait until after my AMGN dividend is reinvested (so as to avoid the wash-sale rule), so I’ll be selling that at the end of week or earlier next week. For GILD, I’m going to wait closer to the end of the month since I currently have an open option trade on it and may be assigned the shares at the end of the month if it stays below 73 and I don’t roll it forward.

What kind of end-of-the-year preparations are you guys doing?

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13 Responses

  1. Some good tips here! Investing is about picking great stocks but it’s important to also keep the tax situation under control.

    TheDividendLife.com

    • scott says:

      Yep, managing loss is also important too. In this case it is a calculated sale of a stock that I actually like and am hoping to buy back at around the same price or less. Now that my tax bracket has increased, it is even more important to understand the tax situation.

      Scott

  2. DividendNoob says:

    Hi,

    I kept doubling down on my losing CVS position and it is currently at $80 so my 3rd time was a charm.

    I want to take a tax loss on my two losing CVS positions below while keeping the winning $70 position and I’m not sure if it’s allowed?

    Buy#1 09/14/2016 $89.95
    Buy#2 10/28/2016 $84.95
    Buy#3 11/08/2016 $70.00

    Let say, on December 20th, I sell Buy#1 and Buy#2 but keep Buy#3. Since buy#3 occurred within 30 days of Buy#2, I’m not sure if tax loss on buy#2 is allowed?

    Thanks in advance.
    DividendNoob

    • scott says:

      Hi DividendNoob,

      Sorry for the late reply. Your brokerage should be able to allow you to pick the lot you want to sell. However, you are right that the buy #2 will be affected by the wash sale rule, which applies to buying a security 30 days before or after the date you sold the security at a loss. Since buy #3 fits that criteria, the loss from selling buy #2 would be disallowed.

      Scott

  3. I sold my NOV position, for about a $1,800 loss. It will help offset taxable gains from my larger stock sell earlier in the year.
    Investment Hunting recently posted…November Dividend IncomeMy Profile

  4. Jay says:

    Thanks for sharing your plans Steve. I’ve been thinking about tax-loss selling in GILD as well. It’s not a huge position for me, but it sure hasn’t gone anywhere! So it might be time to capitalize the loss (at least in my taxable accounts). Other than that there isn’t much on my books that I’m looking to part with at this point – I guess that’s a good problem to have 🙂
    Jay recently posted…Trend Following Stock Trade Ideas for December 2016 (Part 1)My Profile

    • scott says:

      Hi Jay,

      While GILD hasn’t gone anywhere recently, it has historically done very, very well. Also, it continues to pay a great dividend and has been raising its dividend. The fact that it has been underperforming the market recently is all the better reason for me to invest in it. I feel it’s one of the few large cap stocks out there that remains well-valued.

      My portfolio is looking really good as well from a capital gains standpoint. I don’t have many stocks with a loss to even consider for selling for tax loss harvesting! Definitely a good problem to have.

      Thanks for the comment,

      Scott

  5. I love hearing others ideas on tax tips with investing. I had two stocks that I’d owned since 2009 that was just sitting there and doesn’t meet my current strategy, so I sold them for a loss to 0 out the positions. I definitely don’t plan to buy back but I can see why you would, if you believe the stock is going to stay lower past that 30 day point, and essentially snag a tax loss and buy back at a better basis.
    Agent Dividend recently posted…Recent BuyMy Profile

    • scott says:

      Hi Agent Dividend,

      Exactly! The tax loss harvesting works great when the stock stays the same or drops lower in the 30+ days after selling it. Plus, it is nice to get rid of that red in the account and lower the cost basis. Best of luck in 2017!

      Scott

  6. Roman says:

    It is very informative for me. Thanks for sharing.

  7. jose says:

    Good idea Scott. Thanks for your Knowledge Share buddy.

  8. nimra says:

    HI,
    It will help offset taxable gains from my larger stock sell earlier in the year.

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