The market has been on fire this year. Many stocks are soaring, and maybe (hopefully) your portfolio is looking pretty solid. But what about the losers? Come on, I know you have a couple in there. I have a few positions that are just dogs this year.
Instead of looking at these loser with a degree of hate and dread, which is part of my normal routine if i'm being honest.... What if we can get rid of them and reduce our taxes. Doesn't that sound nice? We wont have to look at this loser and we can pay less taxes.
The end of the year is the perfect time to think about tax loss harvesting. This is a good way to trim losing positions and reduce your taxes.
First, if you aren’t aware: What Is Tax Loss Harvesting?I am not an accountant or a CPA. I’m not licensed, nor am I claiming this is financial advice. That said, I’ve been using tax loss harvesting for years, just as a guy who’s been in the stock market for decades.
Tax loss harvesting means selling a stock or investment that’s at a loss to offset gains in other parts of your portfolio or to reduce your taxable income.
Think of it as reducing some of your profits by getting rid of a stock that’s stinking up your portfolio. When you sell at a loss, you can:
Offset capital gains from your winning trades.
Deduct up to $3,000 from your income (if you have no gains).
Carry over excess losses into future years.
Here’s how I think about it and why it matters right now:
The market has been strong. Your winners may have triggered gains.
Year-end is the deadline for claiming losses this tax year.
If you don’t act, you’ll miss out on the chance to save—and that might be okay. Maybe you shouldn’t cut a position. It’s up to you.
Here's My Process for Deciding:
Review My Portfolio: I look for any positions that are significantly down. This is easy since I see them regularly.
Ask the Big Question: Do I still believe in this stock or ETF? Can I write a paragraph explaining why I think this position will be higher in 2025? I’m serious here—actually write it out. Then give it the sniff test. Sometimes we’re just fooling ourselves, holding onto a stock because we don’t want to admit we’re wrong.
Consider the Wash Sale Rule: I’m not a CPA, so check with yours. Generally, if you buy the same or a “substantially identical” stock within 30 days, you can’t claim the loss. In my case, these losers have usually been around a while, and I’m not planning to buy them back soon anyway.
Common Mistakes to Avoid:
Bias and Emotional Attachment: Wanting to be right and refusing to admit you’re wrong can trick you into holding onto losing positions. Don’t marry your stocks. You are not the stock, and a stock moving in the wrong direction is not a personal attack. Recognize when you’re clinging to a loser simply because it’s “yours” rather than because it makes sense to keep holding.
Ignoring the Wash Sale Rule: If you buy the same or a similar stock within 30 days, you can’t claim the loss.
Ignoring Tax Brackets: If you’re in a lower tax bracket, the benefit might not be huge, but every bit helps.
Why It’s About Freedom
This strategy isn’t just about saving money; it’s about giving yourself more freedom. Freedom to make smart, math-based decisions without getting stuck in emotional trades.
Take a look at your portfolio. If you’ve got some losers, ask yourself:
Does this position still make sense for me?
Could selling now help my bigger financial goals?
Let's end the year strong! And as always:
Happy Trading Good Kids
-$Maxwell
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