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The author, Jen Glantz.
Gaby Deimeke
I asked money experts for tips on how to get the most out of selling stocks by the end of the year.I’m going to use tax-loss harvesting to maximize the benefit I get from selling stocks.I’m not selling my entire portfolio, but I’ll hold on to a small selection of promising stocks.
I use the month of October to clean up my finances however I can before the end of the year. I revise my spending budget so that I can save big before the holiday season hits and gift buying begins. I also make extra contributions to my retirement account, and I dial up my accountant to ask what I can do now to help reduce my 2023 tax bill.
One pain point I’m addressing is that I have lost so much money in the stock market this year, and I just want out. During the pandemic, I recklessly bought stock in companies I was a consumer of, and I bought into the buzz from friends about stocks that were going to soar.
Because I haven’t been closely managing my stock portfolio and didn’t have a strategy, I’ve lost more money than I’m comfortable with. I’d like to reduce my exposure to the market by 75% and invest that cash in some of the best CDs.
I wanted to find out how to strategically pull both losses and gains out of the market by the end of the year, so I chatted with certified financial planner Jeff Rose and Lei Han, a CPA with a Ph.D. in accounting, for their best tips. Here’s what they say I should do.
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1. Evaluate why I want to sell before the end of the year
After a few years of investing money in individual stocks with no game plan, I’ve decided that I’ve had enough. I want to be more strategic about how I’m investing my money. Rose says that before I make any moves, I should spend time evaluating why I want to sell.
“Determine if it’s an emotion-driven or strategic decision,” he says. “That’s because if a stock has strong fundamentals, it might be worth holding onto despite short-term losses.”
With his recommendation, I sat down and reviewed each individual stock, looked into the company’s earning reports, and researched news about emerging trends in that industry. I spent two hours per company doing this to try to have more education around what could happen to the stock price over the next few years or month. Because I’m still a rookie at investing in the market, I still felt an urge to sell most of my individual stocks.
In that case, Rose advised looking into how selling these stocks before the end of the year could minimize my tax liability.
2. Take advantage of tax-loss harvesting before the end of the year
I’m looking for ways to reduce my 2023 tax bill. Han suggested that I consider tax-loss harvesting — the capital losses from selling losing stocks can be used to offset capital gains from investments. These losses can lower taxable income up to $3,000 for the year.
I’m not only looking to sell stocks that have lost money; I’m also looking to sell stocks that have doubled or tripled in value as well, because I want to get rid of most of my individual stocks. Han advised that If I want to sell both, it would be good to do so by December 31, 2023, which is the deadline to harvest the capital losses.
“If you need to lock in some gains from stock investment and take a tax break on it, you could consider selling your losing stocks to generate capital losses,” she says. “The capital losses can be used to offset capital gains.”
However, Han shared a caveat that’s important to know if you’re someone who plans to keep on buying and selling stocks.
“Be careful of the wash-sale rule. You cannot use the losses to offset gains if you purchase the same or substantially identical investment within 30 days, before or after the sale,” she says.
3. Think about my overall financial portfolio before making a final decision
Even though I’m eager to move my money out of the market by the end of the year, Rose advised that tax considerations, while pivotal, shouldn’t be the lone factor that steers investment decisions.
“Your broader financial landscape, individual goals, and the potential of each stock should also have a seat at the decision-making table,” he says.
Keeping this information in mind, I plan to sell stocks that yielded losses and gains, while holding on to a few individual stocks that seem promising in the future.