Your year end tax and investment plan should include tax loss harvesting your energy investments.
If you hold energy sector investments in your taxable investment accounts chances are you have loses. Now could be a good time to do a little tax loss harvesting. If you are expecting to face capital gain taxes this year, tax-loss harvesting can help reduce what you’ll pay. It involves selling any investment that has declined in value before year-end, including stocks, bonds and mutual funds, so that the capital losses you report can offset your capital gains. You might also want to sell these investments as part of your overall investment strategy if, for example, there have been changes in the markets or in your investment goals during the year and you want to rebalance you portfolio to better reflect your financial needs. Keep in mind, too, that you can deduct up to $3,000 of capital losses from your taxable income, so selling losing investments before year-end can be a smart move even if you don’t need to reduce capital gains taxes this year.
If you have sold some investments for gains earlier in the year, sell your losers before year end to offset the gains. Then buy back the losers in a tax deferred account like an IRA or even in your 401k by using an energy sector fund, ETF or even individual stocks.
Chesapeake Financial Advisors is a fee-only financial planning, investment advisory and tax planning firm with offices in Towson and Columbia, Maryland.