Here’s How Stock Losses Can Boost Your Tax Refund

Core Insights - The primary objective of investing is to grow capital through gains or income, with losses being an undesirable outcome [1] Tax Strategies - Investors can utilize capital losses to offset taxable capital gains, a strategy known as tax-loss harvesting [2][3] - For instance, selling a stock at a profit and then selling another stock at a loss can result in a net tax liability of zero if the losses equal the gains [3] Wash-Sale Rule - The "wash-sale" provision prohibits selling a security at a loss and repurchasing the same or substantially identical security within 30 days [4] - This rule is crucial for investors to consider when planning tax-loss harvesting strategies [4] Long-Term Investment Considerations - Investors should not sell stocks solely for tax benefits; decisions should align with long-term investment beliefs [5] - Selling a stock to offset gains may lead to missed opportunities if the stock appreciates during the waiting period [5] Reducing Taxable Income - Excess capital losses can offset ordinary income up to $3,000, providing additional tax savings [6] - For example, if an investor has $10,000 in gains and $13,000 in losses, they can reduce their taxable income, resulting in a lower tax bill [7]