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By Ed Rosenberg
We all get satisfaction when we reap money on the sale of a stock. Yet, the joy of those gains can be tempered with hefty tax bills. While losses can also be hard to swallow, they may have potential tax benefits. When investors use the losses of one investment to offset the gains of another,1 it is called "tax-loss harvesting."
Year-end is a great time to review your clients' portfolios' capital gains tax exposure. Taxes alone shouldn't drive investment decisions. But harvesting losses (or avoid potential gain distributions) made in concert with an overall investment plan may ease the winter tax-bill sting.
Several brokers recently announced that they will no longer charge transaction fees for exchange-traded funds (ETFs) purchased on their platforms. Also known as NTF (no transaction fees), this move makes ETFs more cost efficient. Increased cost efficiency is yet one more reason to consider using ETFs when replacing a security sold at a loss.
There are specific rules around tax-loss harvesting—especially when it comes to "wash sales." A wash sale occurs when a security is sold to claim a loss and is then repurchased (or replaced with a "substantially identical" security) within 30 days before or after the sale. The IRS prohibits this transaction type and will negate any potential tax benefits from the sale.
So, it's important to understand how much the holdings of one security mirrors that of another before making loss-harvest purchasing decisions. Download our "Harvest Time" brochure below for a tax-loss harvesting dos and don'ts, and for a framework to assess similarity across various investments.
1 Long- and short-term capital gains are taxed at different rates. Long-term gains may only be offset by longer-term losses. Likewise, short-term gains may only be offset by short-term losses.
Use our framework as a starting point for year-end tax planning discussions.
Julie Cooling with RIA Channel sits down with Ed Rosenberg at Schwab Impact to discuss the economy and markets.
Investor interest in exchange-traded funds continues to grow—as evidenced by the roughly 2,300 people who joined last month's Inside ETFs conference. Here, we share three findings.
March 12, 2019
Gains on the sale of a stock can come with the surprise of hefty tax bills and losses can be hard to swallow. The good news is that losses may come with a silver lining in the form of potential tax benefits.
Ed Rosenberg, Senior Vice President and Head of Exchange Traded Funds, American Century Investments talk about about how Semitransparent Active ETFs broaden the range of strategies available in the ETF structure.
With exchange traded funds among the most popular vehicles for investment today, in comparison to 25 years ago, we look forward to 2019 and beyond.
January 9, 2019
IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.
This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.
ETF shares may be bought or sold throughout the day at their market price, not their Net Asset Value (NAV), on the exchange on which they are listed. Shares of ETFs are tradable on secondary markets and may trade either at a premium or a discount to their NAV on the secondary market.
ETFs trade like stocks, fluctuate in market value and may trade at prices above or below the ETF's net asset value. Brokerage commissions and ETF expenses will reduce returns.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
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