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.
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‘
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