Tax loss selling ... Tax Loss selling is coming to a close folks, and that to me just may explain the lack of volume.. With the deadline being Dec28th who wants to risk selling the last day when you have to wait it out 30days.. So it made a lot of sense to dump Dec1 not now because chances are in January you would potentailly pay a much larger premium should you have failed to sell soon enough. Shorts also bank on those that want the loss to sell... By Dec 28th it is over.. the problem these folk have is that they can not buy back in b4 30days or it is considered a wash trade. This volume of selling causes buying opportunities. Sell the dogs so to speak. Problem is we have a GEM hear not a dog so those that sell likely pay a small prmium in January.. If they have to wait until the end of January who takes this risk?? every penny equates nearly to a 9% premium from today so unless this stays under 15cts in January you did not make the right decision.. So all I can say is good luck to you and I thank you for that sell... This article reminds us a little of the particulars of tax loss selling and the benefit to buy during these times.
As 2022 comes to a close, investors may want to consider looking at how they can use tax-loss selling to their benefit.
Buying stocks low and selling them high is ideal, but sometimes investments go sour. In such cases, all hope is not lost — at the end of the year, investors can sell investments that provided losses instead of capital gains.
The money made from selling off losses can then be used to offset capital gains liability incurred for the year. This is the principle behind tax-loss selling, also known as tax-loss harvesting.
This valuable strategy offers investors another opportunity to lower their tax bill for 2022, according to Bloomberg. In effect, it seems you really can win for losing. So let’s take a look at how tax-loss selling works.
How does tax-loss selling work?
Tax-loss selling is the process of selling stocks at a loss in order to reduce the capital gains earned on an investment. Since capital losses are tax deductible, these losses can be used to offset capital gains and reduce an investor’s tax liability on their tax return.
Tax-loss selling generally involves investments related to huge losses, and because of this, these sales generally focus on a relatively small number of securities within the public markets. However, it’s important to be aware that if a large number of sellers were to execute a sell order in tandem, the price of the securities would fall.
It’s also worth noting that once selling season has ended, shares that have become largely oversold can bounce back. In addition, the fact that tax-loss selling often occurs in November and December means the most attractive securities for tax-loss selling are investments that are likely to generate strong capital gains early in the next year.
As a result, a potentially beneficial strategy would be to buy during the selling season and sell after the tax loss has been established. This approach could be used on either long-term capital gains or short-term capital gains.
Some investors may consider selling an asset at a loss, deducting that loss for a tax gain and then turning around and purchasing the same stock again in an effort to evade taxes. This is known as a wash sale. However, wash sales are prohibited by the Internal Revenue Service (IRS); if the IRS deems a transaction to be a wash, the investor would not be allowed any tax benefits.
To avoid this situation, investors must wait 30 days to repurchase shares that were originally sold for a loss. Additionally, shares sold for a loss must have been in the investor’s possession for over 30 days.
What are the important tax-loss selling dates for 2022?
Tax-loss selling comes with many potential benefits, but it nevertheless has some strings attached.
The key thing for investors to remember is that it has deadlines. For investors filing their taxes in Canada, the last day for tax-loss selling in 2022 is December 28. Stocks purchased or sold after this date will be settled in 2023, so any capital gains or losses will apply to the 2023 tax year. The system differs for those filing their taxes in the US, and based on information from the IRS, the last day for tax-loss selling this year is December 30.
Investors should always consult with an expert or review relevant tax documents directly for complete answers. The information contained in this article should not be considered tax advice.
The flip side of tax-loss selling
Investors should know that as tax-loss selling starts, opportunities can open up for those who have spent the year on the sidelines.
In her piece “How Bout Tax Loss Buying?,” Gwen Preston of Resource Maven explains that Canaccord Genuity (TSX:CF,OTC Pink:CCORF) has found that from mid-November to mid-December, S&P/TSX Composite Index (INDEXTSI:OSPTX) stocks down more than 15 percent year-to-date underperform the index by nearly 4 percent. However, from mid-December to mid-January, those same stocks outperform the index by 3.6 percent.
“That outperformance is on top of gains the TSX reliably generates over that time frame,” Preston explains. “So instead of only seeing tax-loss selling as a time to generate tax credits by dumping dogs, let’s look at the opportunity to profit.”
Watch Gwen Preston of Resource Maven discuss tax-loss selling.
How can investors time tax-loss selling?
Regardless of whether you’re engaging in tax-loss selling or buying, Steve DiGregorio, portfolio manager at Canoe Financial, recommends acting swiftly and aggressively as “liquidity will dry up.”
He sees the second and third week of December as the ideal window, which is well ahead of the “Santa Claus rally” — the period around the last week of December when stocks tend to rise ahead of a healthier market in January.
For now, the year isn’t over yet, so whether you’re tax-loss selling or buying, there’s still time to talk to your accountant or financial advisor to determine which approach is best for you.
This is an updated version of an article first published by the Investing News Network in 2014.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.