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PFT #55 - Personal Finance Tip Tracking Realized Capital Gains for the Calendar Year

This week’s topic is about realized capital gains before the calendar year ends.

As each year ends it is a common practice for investors to balance losses against gains to minimize taxes that are paid to the IRS each year.

This applies to ownership in stocks, bonds, mutual funds, options and even crypto.

When owing these assets we are referring to after tax accounts which is a straight brokerage account meaning that it doesn’t apply to tax-deferred accounts such as a 401(k)’s and it doesn’t apply to after tax accounts such as Roth 401(k)’s, Roth IRA and IRA’s.

So here’s how it works: each year you calculate what you have in gains versus losses and determine what the number is.

For example, if you sell Apple for $20,000 in profit and sell Microsoft for an $18,000 loss, you have a realized capital gain of $2,000.

This would then be considered taxable as investment income.

Now in the event that you incur a loss, the IRS allows for a maximum amount of $3,000 each calendar year.

Lastly, if you have losses greater than $3,000 you can carry them into future tax years and offset them when you have gains greater than this amount.

The bottom line is that people typically have winners and losers in their portfolio. Hence, balancing the equation can reduce your tax load then can reload investment for the next calendar year.

Episode Link:

Understanding capital gains tax

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