Reap What You Sow: What Is Tax-Loss Harvesting?

Kristin Sweis

Tax-loss harvesting is a term used in the financial world that describes an interesting tax savings strategy. It can often be a confusing concept so let’s start with the definition of harvest. Harvest is the process of gathering crops after they have ripened and are ready to be picked. The crops are then stored in a silo for future use to provide food during a time when it is not readily available.

So how can a farming concept help to reduce taxes? Let’s take the concept of the harvest out of the farm and “plant” it right in the middle of Wall Street to better explain how tax-loss harvesting works. It’s a strategy that allows an investor to offset gains that they have realized in one investment with losses they have incurred with another investment.  If you own an investment that increases in value, you have a capital gain. If you own an investment that decreases in value, you have a capital loss. Any investments you currently own have “unrealized” gains or losses- you have either made or lost money on paper. Once you sell an investment you will have a “realized” gain or loss. If you have realized gains, you will owe taxes, however, if you sell an investment for a loss, that gain can be reduced or even wiped out completely depending on how much it is, which then reduces your tax liability overall. The strategy of tax-loss harvesting, however, harvests losses as they incur, to store them up in your “silo” to use against any future gains.  This only works in a taxable account and does not benefit you in a retirement account.

Here is an example of what this looks like:

Tax Loss Harvesting

There are a lot of moving parts to consider, so it is important to consult a tax professional before you harvest.  If you are to attempt this, there are some important things that you will need to understand prior. Understanding of the wash sale:  If you sell an investment for a loss, you cannot purchase that same investment (or one that is highly correlated) back within 30 days of that sale, otherwise it is considered a Wash Sale; your loss gets washed away, which means you can’t claim the loss.  Another important concept to understand is short term vs. long term investments.  Short term investments are investments owned for less than one year and are taxed as ordinary income, while long term investments are held for a year or more and have a different tax rate (either 0%, 15%, or 20% depending on your tax bracket, which may be lower than your income tax rate).  Short term losses first offset short term gains, and long-term losses offset long term gains.  Then you can offset any short-term gain with a long-term loss after all long-term gains have been offset.  Like I said- a lot of moving parts. 

Market volatility is inevitable.  At Spotlight Asset Group, we take advantage of the volatility and we harvest losses opportunistically. As losses are realized and then immediately reinvested, we are lowering your cost basis and buying securities at a lower price in order to take advantage of the market rebound. If you are in the market for the long run and have a proper allocation in place that fits your long-term goals and financial needs, taking advantage of this strategy may add value to your bottom line and more money in your pocket.

Kristin Sweis

Join the Spotlight Asset Group Newsletter

Kristin Sweis

Tax-loss harvesting is a term used in the financial world that describes an interesting tax savings strategy. It can often be a confusing concept so let’s start with the definition of harvest. Harvest is the process of gathering crops after they have ripened and are ready to be picked. The crops are then stored in a silo for future use to provide food during a time when it is not readily available.

So how can a farming concept help to reduce taxes? Let’s take the concept of the harvest out of the farm and “plant” it right in the middle of Wall Street to better explain how tax-loss harvesting works. It’s a strategy that allows an investor to offset gains that they have realized in one investment with losses they have incurred with another investment. If you own an investment that increases in value, you have a capital gain. If you own an investment that decreases in value, you have a capital loss. Any investments you currently own have “unrealized” gains or losses- you have either made or lost money on paper. Once you sell an investment you will have a “realized” gain or loss. If you have realized gains, you will owe taxes, however, if you sell an investment for a loss, that gain can be reduced or even wiped out completely depending on how much it is, which then reduces your tax liability overall. The strategy of tax-loss harvesting, however, harvests losses as they incur, to store them up in your “silo” to use against any future gains. This only works in a taxable account and does not benefit you in a retirement account.

Here is an example of what this looks like:

Tax Loss Harvesting

There are a lot of moving parts to consider, so it is important to consult a tax professional before you harvest. If you are to attempt this, there are some important things that you will need to understand prior. Understanding of the wash sale: If you sell an investment for a loss, you cannot purchase that same investment (or one that is highly correlated) back within 30 days of that sale, otherwise it is considered a Wash Sale; your loss gets washed away, which means you can’t claim the loss. Another important concept to understand is short term vs. long term investments. Short term investments are investments owned for less than one year and are taxed as ordinary income, while long term investments are held for a year or more and have a different tax rate (either 0%, 15%, or 20% depending on your tax bracket, which may be lower than your income tax rate). Short term losses first offset short term gains, and long-term losses offset long term gains. Then you can offset any short-term gain with a long-term loss after all long-term gains have been offset. Like I said- a lot of moving parts.

Market volatility is inevitable. At Spotlight Asset Group, we take advantage of the volatility and we harvest losses opportunistically. As losses are realized and then immediately reinvested, we are lowering your cost basis and buying securities at a lower price in order to take advantage of the market rebound. If you are in the market for the long run and have a proper allocation in place that fits your long-term goals and financial needs, taking advantage of this strategy may add value to your bottom line and more money in your pocket.

Financial Abuse

Kristin Sweis

October is National Domestic Violence Awareness Month.  Financial Abuse occurs in 99% of all domestic violence cases* and is a form of abuse that can sometimes be difficult to diagnose.  When people think of domestic abuse, they typically think of physical abuse where you can see the physical signs that something is happening.  However, other forms of abuse, such as financial and emotional abuse, are not as obvious.  Financial abuse is the silent form of domestic violence and is one of the most powerful forms of abuse and most difficult to escape.  Seven out of eight victims of financial abuse go back to the abuser because of this. **  Financial abuse doesn’t just have to be between a couple, it can occur with caretakers and seniors or with legal guardians.  Financial abuse occurs among all different ethnicities, ages, and economic backgrounds.

What is financial abuse? Financial Abuse is the act of blocking or controlling access to financial assets to ensure the victim is dependent on the abuser. The abuser can be a domestic partner, a caretaker, guardian, or present in any situation where one is in control of someone.  The goal of the abuser is for the victim to become completely financially dependent, to where they do not have the means to make it on their own.  In many cases, it comes across as being loving or endearing because that person is saying they will help you and take care of the finances to relieve you of the burden.  This leaves the victim trusting this person and unaware that the abuser is using their power to hide money, spend or gamble it away, or rack up debt in the victim’s name.

There are also forms of financial abuse that are more violent, such as going to the victim’s place of work and causing them to lose their job, forbidding them to work, or forcing them to work long hours or be the breadwinner while the abuser does not contribute financially to the relationship.  Other forms of financial abuse include giving someone an allowance or withholding money, refusing to pay for basic needs for the family, not allowing the victim to see bank accounts, ruining the victim’s credit, or forcing the victim to write bad checks or sign a false tax return.  Financial abuse can often take years to recover from in terms of rebuilding savings and credit.  Some victims may need to file for bankruptcy just to start over.

Financial abuse can have long lasting effects that make it very difficult for a victim to leave an unhealthy situation because, for example, they are not left with enough money to break free and get out on their own.  Coupled with poor credit, this can make it that much harder to start over. Raising awareness and educating people on the signs is important, especially when approximately 78% of Americans do not recognize financial abuse as a form of domestic violence.  There are many services that can help victims**, and the first step is figuring out this is happening.  Sometimes the victim doesn’t realize it’s happening until they try to leave an abusive relationship and find their accounts drained.  Stay involved in your finances, if someone is upset that you are asking questions or want to be involved there may be a larger problem.  Make sure to have all your account user names and passwords and check them regularly.

Hiring a trusted financial professional as a fiduciary also adds checks and balances.  As an advisor, we can see if there is a sudden change in the investment behavior of one of our clients, if they are suddenly writing large checks to a family member regularly, or one of the parties is slowly draining the account over time.  When we call to talk to a client that may be elderly, are they afraid to say something on the phone for fear their caregiver may harm them?  We need to be aware that this is an issue so that we can see the signs and help our client’s before it goes too far.

If you or someone you know are a victim, below are links to some resources that you can contact for help.

*https://centerforfinancialsecurity.files.wordpress.com/2015/04/adams2011.pdf

**https://money.usnews.com/money/blogs/my-money/2011/04/26/how-to-stop-domestic-financial-abuse

https://www.huffpost.com/entry/7-ways-to-help-victims-of-financial-abuse-break-free_b_59e751d3e4b0153c4c3ec41e?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAABmP1dIt6D20gPNXlLml6rDfT5paoV8GJ-WHRJpCzTLHsXnWTU8TQXxwkgEhphFgLNsdCMqGFEfsR5ORgZqaQNXqRMUmgxj0QM0uY65_Uk-3liHgou0zB6P9cD7YzNZXUkIwCwswPSPBMR2k3DzrJAVuYNA-3PpNLZ1vt89nPxJz

https://www.verywellmind.com/financial-abuse-4155224

For help:

www.nnedv.org

https://www.womenslaw.org/about-abuse/forms-abuse/financial-abuse/all?gclid=EAIaIQobChMI_oi1lMG_4wIVhYbACh2P0Q8wEAAYAiAAEgIW0fD_BwE#node-27115

National Domestic Violence Hotline 1-800-799-SAFE

 

Kristin Sweis

Join the Spotlight Asset Group Newsletter

Kristin Sweis

October is National Domestic Violence Awareness Month.  Financial Abuse occurs in 99% of all domestic violence cases* and is a form of abuse that can sometimes be difficult to diagnose.  When people think of domestic abuse, they typically think of physical abuse where you can see the physical signs that something is happening.  However, other forms of abuse, such as financial and emotional abuse, are not as obvious.  Financial abuse is the silent form of domestic violence and is one of the most powerful forms of abuse and most difficult to escape.  Seven out of eight victims of financial abuse go back to the abuser because of this. **  Financial abuse doesn’t just have to be between a couple, it can occur with caretakers and seniors or with legal guardians.  Financial abuse occurs among all different ethnicities, ages, and economic backgrounds.

What is financial abuse? Financial Abuse is the act of blocking or controlling access to financial assets to ensure the victim is dependent on the abuser. The abuser can be a domestic partner, a caretaker, guardian, or present in any situation where one is in control of someone.  The goal of the abuser is for the victim to become completely financially dependent, to where they do not have the means to make it on their own.  In many cases, it comes across as being loving or endearing because that person is saying they will help you and take care of the finances to relieve you of the burden.  This leaves the victim trusting this person and unaware that the abuser is using their power to hide money, spend or gamble it away, or rack up debt in the victim’s name.

There are also forms of financial abuse that are more violent, such as going to the victim’s place of work and causing them to lose their job, forbidding them to work, or forcing them to work long hours or be the breadwinner while the abuser does not contribute financially to the relationship.  Other forms of financial abuse include giving someone an allowance or withholding money, refusing to pay for basic needs for the family, not allowing the victim to see bank accounts, ruining the victim’s credit, or forcing the victim to write bad checks or sign a false tax return.  Financial abuse can often take years to recover from in terms of rebuilding savings and credit.  Some victims may need to file for bankruptcy just to start over.

Financial abuse can have long lasting effects that make it very difficult for a victim to leave an unhealthy situation because, for example, they are not left with enough money to break free and get out on their own.  Coupled with poor credit, this can make it that much harder to start over. Raising awareness and educating people on the signs is important, especially when approximately 78% of Americans do not recognize financial abuse as a form of domestic violence.  There are many services that can help victims**, and the first step is figuring out this is happening.  Sometimes the victim doesn’t realize it’s happening until they try to leave an abusive relationship and find their accounts drained.  Stay involved in your finances, if someone is upset that you are asking questions or want to be involved there may be a larger problem.  Make sure to have all your account user names and passwords and check them regularly.

Hiring a trusted financial professional as a fiduciary also adds checks and balances.  As an advisor, we can see if there is a sudden change in the investment behavior of one of our clients, if they are suddenly writing large checks to a family member regularly, or one of the parties is slowly draining the account over time.  When we call to talk to a client that may be elderly, are they afraid to say something on the phone for fear their caregiver may harm them?  We need to be aware that this is an issue so that we can see the signs and help our client’s before it goes too far.

If you or someone you know are a victim, below are links to some resources that you can contact for help.

*https://centerforfinancialsecurity.files.wordpress.com/2015/04/adams2011.pdf

**https://money.usnews.com/money/blogs/my-money/2011/04/26/how-to-stop-domestic-financial-abuse

https://www.huffpost.com/entry/7-ways-to-help-victims-of-financial-abuse-break-free_b_59e751d3e4b0153c4c3ec41e?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAABmP1dIt6D20gPNXlLml6rDfT5paoV8GJ-WHRJpCzTLHsXnWTU8TQXxwkgEhphFgLNsdCMqGFEfsR5ORgZqaQNXqRMUmgxj0QM0uY65_Uk-3liHgou0zB6P9cD7YzNZXUkIwCwswPSPBMR2k3DzrJAVuYNA-3PpNLZ1vt89nPxJz

https://www.verywellmind.com/financial-abuse-4155224

For help:

www.nnedv.org

https://www.womenslaw.org/about-abuse/forms-abuse/financial-abuse/all?gclid=EAIaIQobChMI_oi1lMG_4wIVhYbACh2P0Q8wEAAYAiAAEgIW0fD_BwE#node-27115

National Domestic Violence Hotline 1-800-799-SAFE

Women Investors on the Rise

Kristin Sweis

While perusing various financial websites, and social media platforms like LinkedIn and Facebook, I’ve noticed that the topic of women and their approach to financial matters comes up more frequently these days. Recent data has caused me to take a step back and look at the topic in a whole new way. According to a 2015 report by the BMO Wealth Institute, women in the U.S. controlled at least $14 trillion of U.S. household finances, representing 51% of all personal wealth in the U.S. By 2020, women are projected to control $22 trillion.[1] Globally, as of 2018, women account for an estimated 40% of all wealth.[2]

As you can see, these numbers keep growing. But why? Several factors are at play here and they highlight the successes women have had and how far we have come over the last 60 years. According to a study by Prudential, in 1960 women were the breadwinners in only about 11% of U.S. households. Today, that number has grown to 44%.[3] We are also seeing more female business owners and entrepreneurs. In fact, 4 out of every 10 businesses in the U.S. are owned by women.[4]  Other, more circumstantial factors that contribute to women’s control of a larger portion of personal wealth include the divorce rate, which continues to hover around 50% of all marriages, and the fact that women tend to outlive men and, therefore, will eventually be the financial decision maker in their household.

Women’s growing economic power is a good thing. However, as they say, with great power comes great responsibility. One potential issue is the fact that, according to the Prudential study, only 20% of women feel “very well prepared” to make wise financial decisions. Further, while a high percentage of women profess an understanding of basic financial products like savings accounts and health insurance, that percentage drops significantly when discussing more complex financial products like 401(k) plans, mutual funds, and annuities. Ladies, if we are in control of a substantial amount of the dough, we must know how to roll it, pat it, and bake it! You can wake up one day and your entire life can change, how awesome would it be to not have to worry about your finances, because you are well prepared in that area, so you can focus on whatever else life is throwing at you. There are a lot of charlatans out there who would love to take advantage of someone in such a situation in order to gain control of their money, be smart and be prepared so that it does not happen to you.

Let’s work together to bridge the financial knowledge gap. What I have found over the course of my career is that education helps me gain the trust of my clients because education is empowerment. I aim to teach my clients to fish, not just give them one. Educating both men and women on financial matters and including both partners in financial planning and decision making is the key to a successful financial partnership. Work with a financial advisor or advisory firm that supports a woman’s role in the process and encourages the involvement of both partners. It is also important to work with a financial advisor who can relate to both parties and who has the patience to answer all questions, simple or complex, with no judgement. At Spotlight Asset Group, we give our advisors the tools and resources necessary to educate our clients, like this blog, our podcast series, and our educational seminars that are aimed at both women and men. I am so proud to work at Spotlight Asset Group because I feel that it is a place where I can make a positive change and build the bridges necessary to close the financial knowledge gap.

[1]  BMO Report: Despite Controlling $14 Trillion in Wealth, American Women Still Have Challenges to Overcome, available at https://newsroom.bmo.com/2015-04-02-BMO-Report-Despite-Controlling-14-Trillion-in-Wealth-American-Women-Still-Have-Challenges-to-Overcome (April 2, 1025).

[2]  Global Wealth Report 2018, Credit Suisse Research Institute, available at https://www.credit-suisse.com/corporate/en/research/research-institute/global-wealth-report.html (October 2018).

[3] Financial Experience & Behaviors Among Women, Prudential Financial Inc., available at http://corporate.prudential.com/media/managed/wm/media/Pru_Women_Study_2014.pdf (June 2014).

[4] WBENC Celebrates National Women’s Small Business Month, The Women’s Business Enterprise National Council, available at https://www.wbenc.org/blog-posts/2018/10/1/wbenc-celebrates-national-womens-small-business-month (October 1, 2018).

Kristin Sweis

Join the Spotlight Asset Group Newsletter

Kristin Sweis

While perusing various financial websites, and social media platforms like LinkedIn and Facebook, I’ve noticed that the topic of women and their approach to financial matters comes up more frequently these days. Recent data has caused me to take a step back and look at the topic in a whole new way. According to a 2015 report by the BMO Wealth Institute, women in the U.S. controlled at least $14 trillion of U.S. household finances, representing 51% of all personal wealth in the U.S. By 2020, women are projected to control $22 trillion.[1] Globally, as of 2018, women account for an estimated 40% of all wealth.[2]

As you can see, these numbers keep growing. But why? Several factors are at play here and they highlight the successes women have had and how far we have come over the last 60 years. According to a study by Prudential, in 1960 women were the breadwinners in only about 11% of U.S. households. Today, that number has grown to 44%.[3] We are also seeing more female business owners and entrepreneurs. In fact, 4 out of every 10 businesses in the U.S. are owned by women.[4]  Other, more circumstantial factors that contribute to women’s control of a larger portion of personal wealth include the divorce rate, which continues to hover around 50% of all marriages, and the fact that women tend to outlive men and, therefore, will eventually be the financial decision maker in their household.

Women’s growing economic power is a good thing. However, as they say, with great power comes great responsibility. One potential issue is the fact that, according to the Prudential study, only 20% of women feel “very well prepared” to make wise financial decisions. Further, while a high percentage of women profess an understanding of basic financial products like savings accounts and health insurance, that percentage drops significantly when discussing more complex financial products like 401(k) plans, mutual funds, and annuities. Ladies, if we are in control of a substantial amount of the dough, we must know how to roll it, pat it, and bake it! You can wake up one day and your entire life can change, how awesome would it be to not have to worry about your finances, because you are well prepared in that area, so you can focus on whatever else life is throwing at you. There are a lot of charlatans out there who would love to take advantage of someone in such a situation in order to gain control of their money, be smart and be prepared so that it does not happen to you.

Let’s work together to bridge the financial knowledge gap. What I have found over the course of my career is that education helps me gain the trust of my clients because education is empowerment. I aim to teach my clients to fish, not just give them one. Educating both men and women on financial matters and including both partners in financial planning and decision making is the key to a successful financial partnership. Work with a financial advisor or advisory firm that supports a woman’s role in the process and encourages the involvement of both partners. It is also important to work with a financial advisor who can relate to both parties and who has the patience to answer all questions, simple or complex, with no judgement. At Spotlight Asset Group, we give our advisors the tools and resources necessary to educate our clients, like this blog, our podcast series, and our educational seminars that are aimed at both women and men. I am so proud to work at Spotlight Asset Group because I feel that it is a place where I can make a positive change and build the bridges necessary to close the financial knowledge gap.

[1]  BMO Report: Despite Controlling $14 Trillion in Wealth, American Women Still Have Challenges to Overcome, available at https://newsroom.bmo.com/2015-04-02-BMO-Report-Despite-Controlling-14-Trillion-in-Wealth-American-Women-Still-Have-Challenges-to-Overcome (April 2, 1025).

[2]  Global Wealth Report 2018, Credit Suisse Research Institute, available at https://www.credit-suisse.com/corporate/en/research/research-institute/global-wealth-report.html (October 2018).

[3] Financial Experience & Behaviors Among Women, Prudential Financial Inc., available at http://corporate.prudential.com/media/managed/wm/media/Pru_Women_Study_2014.pdf (June 2014).

[4] WBENC Celebrates National Women’s Small Business Month, The Women’s Business Enterprise National Council, available at https://www.wbenc.org/blog-posts/2018/10/1/wbenc-celebrates-national-womens-small-business-month (October 1, 2018).