Tax Loss Harvesting

investing, Lifestyle

First off, Happy New Year to you all! When I reflect over the past year, certainly the Celsius crypto scam I endured and a private equity company taking over the office I work at were both big ticket items. While both matters still strike a chord with me, time has helped me not feel quite so overwhelmed by them. In terms of the Celsius fiasco, the Chapter 11 bankruptcy is still underway; but what has helped me cope is giving up on any expectations of seeing any of that money returned to us. The feelings of betrayal, and ignorance, and outright stupidity I once felt for falling for such a con – that has slowly subsided. Since then, yet another big crypto company (FTX) has collapsed; and while I thankfully did not have any money tied up in that embezzlement, I certainly can empathize for those that did. In the new year, I am resolved to return to the traditional, tried and true, much more conservative means of investing.

On the dental practice front, I had explored several partnership and ownership opportunities but ultimately decided to stay put. I talked briefly in a previous post about why I have remained an associate for so long; and at the end of all my recent explorations to find my own office, I realized that the time with my family is more valuable to me then equity in a business. Truth be told, I am still a little nervous about what changes have yet to come. Will I have to clock-in now? Will they start to dictate what supplies we can and cannot order? How soon do they intend on selling our office to an even bigger DSO? As of this new year, they are officially my new employer – so time will tell how tumultuous this transition will truly be. Let’s hope it is not as chaotic as my mind makes it out to be.

This past week, we vacationed with my sister-in-law and her family in their new home in Tampa, Florida. Towards the end of the trip, a few days shy of the new year, I received a call from one of the managing partners of some investment property we did in Arizona a few years ago. To my surprise, she notified me that the property was expected to sell before the end of the year and they had sold for nearly 3x the original amount of our investment. Now there are management, legal and accounting fees that are withdrawn before investors like us are paid out in syndication deals such as these, but still, it was music to my ears to close out an otherwise rough investment year.

As fate would have it, I so happened to be in the house with a Certified Public Accountant (CPA) at the time I received this news. Now, I am a simple W2 employee, with a buy-and-hold investment strategy, who has never inherited any amount of money to where I would need to be concerned about the tax burden on it. However, the profits on this AZ syndication investment would stick me with a 20% long-term capital gains tax rate on that amount.

The concept of ‘tax loss harvesting’ is a tax-planning strategy where you can offset some capital gains with some losses you incurred in the same or other securities. It can be a complex, and fortunately I had a knowledgeable CPA available to me at the time to help walk me through many of the intricacies in implementing this. Since the S&P 500 finished down nearly 20% for the year (2022), and many of my hand-picked stocks (including TSLA, AAPL, NFLX just to name a few) did even worse – I had plenty of stocks to sell (and therefore ‘realize’ losses on) that could help counter my tax liability on the gains I am looking to make from the AZ property.

Even with this tax loss harvesting technique, it comes with rules to abide by so not to void its efficacy with the Internal Revenue Service (IRS). One such rule is called the ‘wash sale rule’. The gist of this rule states that an investor cannot buy a ‘substantially identical security’ within a 30-day period before OR after the sale. For example, I cannot buy any shares of TSLA within the next 30 days, otherwise this eliminates my ability to use that original sales losses for tax purposes.

If you have any interest in this topic whatsoever, please visit the White Coat Investors Tax Loss Harvesting Rules website. He goes into much greater detail and knows significantly more about this topic then I have gleamed within this mere past week.

The only real mistake is the one from which we learn nothing.

– Henry Ford

Another potential route I would love to have explored (if I had more time then just two days) is to consider selling my Celsius claims at a loss. I read an article in the Wall Street Journal that states some customers are selling their bankruptcy claims (at steep discounts) to a broker/buyer (Cherokee Acquisition and XClaim). I already expect to see pennies on the dollar by the time the Chapter 11 bankruptcy concludes, I would have loved to utilize the financial losses this year and just have emotional closure to that whole mess. With such little notice between hearing of the AZ property sale and the end of the year, this was not unfortunately an option I was able to execute.

I am not a financial expert, nor am I qualified to give financial advice. I simply write about my own experiences, and if my ventures into crypto and individual stock picking has taught me anything, it’s that I still have so much to learn about. Hopefully some of the stuff I talk about helps others avoid similar mistakes and come out ahead. Hope everyone is having a good start to their new year!

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