You can reduce your tax liability by discovering any losses you may not have noticed before and selling those investments in this tax year to offset your gains. Be sure to avoid the wash sale rule though, if you want to get the most from your non-performing assets by selling them.

What Exactly is the Wash Sale Rule?

According to Investopedia, a wash sale rule is a rule set by the Internal Revenue Service that prohibits a taxpayer from claiming a loss on the sale or trade of a security in a wash sale.

What is a wash sale? A wash sale is a sale when an individual sells or trades a security at a loss, and then within just thirty days of the sale buys a stock that is similar or draws a contract or plan to do so. It is also considered a wash sale if a person sells a security, just to have a spouse, their business account, or someone else close to them buy it.

How Can You Avoid the Wash Sale Rule?

The most straightforward way to avoid the wash sale rule is to wait thirty-one days before buying a similar or the same security.

Before selling, buy shares equal to the amount you plan to sell. Then wait 31 days and sell the original amount at a loss.

You can buy securities from a different company in the same industry or shares in a mutual fund that holds securities much like the ones you sold. Just be sure to go to a different company. The IRS does not have a clear definition of substantially identical; it is judged on a case by case basis. Similar stocks in different companies are not typically considered wash sales.

Save on taxes this year and keep more of your gains by contacting us to discuss your portfolio today. We offer solid investment advisory services to help you keep and increase your money, and tax consulting to keep you in the know about new regulations and how to comply.