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We are 5 months away from filing taxes but December is actually a very important month for starting to think about taxes.
If you have sold some investments with capital gains outside a registered account, you may offset the capital gains by taking capital losses too. It’s not a matter of holding a negative stock for the long term but simply making a tax efficient move. You can buy back the stock 30 days after your trade settles.
Tax Planning Example
Consider two investments purchased over the past year:
- Company A: 100 shares at $10.00
- Company B: 50 shares at $20.00
At the end of the year, the companies have the following values:
- Company A is trading at $14.00
- Investment value in Company A is $1400.00
- Company B is trading at $16.00
- Investment value in Company B is $800.00
You took some profits in Company A by selling half of them. Might be to add to Company B at some point but once you sold in a non-registered account, you have capital gains to pay. Considering Company B is trading at a loss, you have an opportunity to offset taxes. You can sell enough to register a loss equal to the gain.
- Sell of 50 shares of Company A @ $14.00 generates $200.00 in capital gains
- Sell of 50 shares of Company B @ $16.00 generates $200.00 in capital loss
The gain and loss will provide you with no taxes to be paid. In 30 days, you can buy back 50 shares of Company B and go on holding it again.
As you can see, there are benefits in planning your taxes in December 
I have not sold any shares in my non-registered account yet. They are really long term utilities and financials. I have, however, sold and swap stocks in my other accounts and it may happen one day that I will sell in my non-registered account.
Worthy Readings
Some weekend reading to share …
- Boomer & Echo with ‘Should You Pay Off Your Mortgage Early Or Invest?‘
- Dividend Guy Blog with ‘Emera EMA Dividend Stock Analysis‘
- Freedome 35 with ‘Swing Trade, Round 6: Buy – Santa Claus Rally‘
- Million Dollar Journey with ‘RESP Portfolio Update – December 2012‘
- My Own Advisor with ‘2012 Blog Year In Review‘
- Retire Happy Blog with ’Ways to Simplify your personal finances‘
- Retire by 40 with ‘Understanding Financial Needs vs. Wants‘
- Web Ninja with ‘Buying Blogs vs. Building from Scratch‘
Carnivals
Here are the carnivals I was present in the last two weeks.
- Carnival of MoneyPros at Making Sense of Cents
- Carnival of Retirement at Investing Money
- Carnival of Retirement at Mo’ Money Mo’ Houses
- Yakezie Carnival at RamblingFever Money
- Carnival of Financial Planning at Master the Art of Saving
- Carnival of MoneyPros at Life Insurance by Jeff
Image: FreeDigitalPhotos.net
Comment test after WP 3.5 upgrade
What a great tip for a newbie investor, thanks, just queued up an order
@maybelline
Glad I could be of assistance
Make sure you wait 30 days before making a purchase on the stock otherwise the capital loss will not count.
Pretty cool example of how to use capital losses against gains to save on taxes. Thanks for the mention. Happy holidays
Liquid recently posted..Farmland Update
Hmm so it looks like my previous order was rejected, I’m not sure why and the markets won’t open till 27th. If I place an order on the 27th, would I make the deadline?
[...] To optimize your RRSP, you will need to have an idea of your taxes. Last month I discussed how you can offset capital gains with capital loss and now it’s time to make sure you make use of your RRSP account effectively if you do make [...]