The stock market: the pros and cons of selling at a loss for tax optimization
The end of the year is approaching, during which many companies' stock markets have experienced steep declines, and now is a time when you are thinking about selling at a loss because tax time is approaching.
Selling at a loss as a way to reduce taxes is a strategy that allows investors with unregistered accounts to reduce or eliminate capital gains. The idea behind such sale is to recover a certain amount already paid in taxes.
It can be the sale of stocks, bonds, mutual funds or exchange-traded funds.
The loss can reduce or nullify capital gains made during the same tax year, the previous three years, or even the following year.
According to investment advisers, this strategy is not without risk because investors who sell at a loss must wait 30 days before buying back the same securities or the tax benefit will be voided. The main risk is that the security being sold could suddenly go up in value during this 30-day period and this could cause some frustration for the investor.
Another risk is that investors who sell securities usually want to reallocate capital elsewhere. However, there is no guarantee that these reinvestments will yield the expected results.
And you have to remember that the deadline for selling at a loss for tax optimization purposes this year is December 28.