“I have learned all kinds of things from my many mistakes. The one thing I never learn is to stop making them.”
― Joe Abercrombie
Over the 40-plus years I’ve been investing in stocks, I’ve made a lot of solid moves. But that doesn’t mean I haven’t made mistakes along the way. I’ve made tons.
Happily, this is the season when yesterday’s bad stock picks become today’s tax deductions.
December is when I review and reflect on my portfolio—not just to count my profits, but to figure out which losses I can realize to reduce my tax bill. It’s called tax-loss harvesting, and if you’re not doing it, you’re leaving money on the table.
How tax-loss harvesting works
The concept is straightforward: You sell investments that have declined in value, locking in a loss that offsets capital gains you’ve realized elsewhere in your portfolio.
If you’re a net winner, you pay income taxes on your profits. If your losses exceed your gains, you can use up to $3,000 of the excess loss to offset ordinary income each year. Any remaining losses can be carried forward to future tax years.
Think of it as turning lemons into lemonade. That tech stock that’s down 30%? That mutual fund that hasn’t performed? These losers can actually reduce your tax bill.
Real-world examples from my portfolio
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