As 2023 draws to a close, clients who own taxable investment accounts should be looking at the possibility of selling off shares of their positions in order to take advantage of the tax loss that it will generate. This will reduce your taxable income (and, by extension, the taxes you will pay) on your account.
Tax Loss Harvesting involves selling a specific, selected security at a loss to reduce the overall capital gains across an entire account. As you know, selling a position at a loss is not consistent with the core principles of Snider Advisors and the Snider Investment Method. However, in some situations it is advantageous to convert a position to cash for a one-month period to gain the benefit of a tax loss.
Tax Loss Harvesting is a relatively simple process, but one that must be performed in a specific manner in order to ensure that the tax loss is properly captured. This year, of course, the situation is somewhat complicated by the fact that we transitioned mid-year from our previous broker, Ally Invest, to our new recommended broker TradeStation. This situation will necessitate going through a few extra steps in the process of determining whether a position is a good candidate for a tax loss harvest or not.
Tax Loss Harvesting Overview
The best tax-loss harvesting candidate is a position with the following characteristics:
- Has a large unrealized loss
- Is at ten times the initial purchase level
- Is in Winter
- Was not previously used for Tax Loss Harvesting
Please let us know if you need help identifying appropriate positions. It may be that no positions fit the required criteria and you will not be able to harvest any losses. The stock(s) you select must be sold on or before December 29, 2023. (The shares do not have to be repurchased this calendar year.)
At least 31 days after you’ve sold your position you will buy it back. Buying the stock back too quickly may result in “Wash Sale,” which would keep you from receiving any tax benefit. You have two choices about how many shares to sell. You can either sell enough shares to cover all of 2023’s realized gains, or you can initiate the process on all positions that fit the criteria.
Losses created in excess of 2023’s realized gains can be carried forward to offset future realized gains. You should use your broker’s tax software (TradeStation and Ally Invest) to make all calculations. This includes finding the year-to-date taxable gains and the appropriate cost basis for tax purposes on your positions.
Keep in mind the average cost in Lattco or on your broker’s holding screen is likely inaccurate for tax purposes. Below, you will have all the instructions for navigating the tax calculation pages at both Ally Invest and TradeStation. Tax Loss Harvesting merely delays taxable income; it does not eliminate it. Risks must be weighed against the benefits of temporarily offsetting gains with losses.
Make sure you fully evaluate your personal tax situation, as there could be other factors to consider. We recommend you review your situation with a tax professional before making a decision. It is important to remind you that tax liabilities should not drive your investment decisions. Tax Loss Harvesting is not a change in your investment objective or strategy; it is simply a way of managing accounts to reduce taxable income for the year.
This guide is designed to walk you through the process of going through your records at both TradeStation and Ally Invest to determine if any of your positions are right for tax loss harvesting. Let’s start by discussing what you will need to do at TradeStation.
Taxable Gains and Loss Estimates – TradeStation
On TradeStation’s Client Center website, there is a specific section dedicated to taxes and tax calculations. Navigating to TradeStation’s Gain/Loss section:
- Log in to TradeStaion’s Client Center
- Click on the tab for Accounts on the top, green toolbar
- Click on Equities Accounts on the left hand side menu
- Click on the Gain/Loss link under the Equities Account menu
If you have multiple accounts, be sure to select your taxable account number in the drop down to make your calculations. On the Gain/Loss Tax Management screen you can view the gains and losses for your account since the transfer to TradeStation. One thing that should be noted is that the cost basis for any holdings that you transferred from Ally earlier in the year should automatically be transferred over to the Gain/Loss section in TradeStation. We have been working with TradeStation to get this completed for all clients who transferred, and we anticipate it should be ready at this time.
Gain/Loss Tax Management – Closed Positions
The first page you will see upon entering the Gain/Loss section is for Closed Positions. It includes a list of the holdings that you have closed since transferring to TradeStation, both stock positions and options. The table contains lots of data for all the taxable transactions in your account for the current year.
At the bottom of the Closed Positions screen, you will see Totals for the Proceeds, Cost Basis, Short Term G/L and Long Term G/L. The totals for Short and Long Term G/L are the most important, as they display the total amount of taxable income that you have generated during your time at TradeStation.
Gain/Loss Tax Management – Open Positions
Next to the Closed Positions tab of the Gain/Loss Tax Management screen will be a tab for Open Positions. This page will display all of the Open Positions that you own in your account.
For the purpose of tax loss harvesting, we will want to focus on the section labeled Open Positions – Long; this represents the shares of stock that you own. Our focus will be on the Short-Term G/L and Long-Term G/L columns of the individual positions to determine the best candidates for tax loss harvesting.
One quick note, the Open Positions screen will frequently display figures that are negative. This is due to the fact that open positions in the Snider Investment Method have generally declined in value from the initial purchase price that we paid for them. They will remain open until we can close them at a profit, at which point they would move to the Closed Positions section. Positions with the largest unrealized loss will be the best candidates for tax loss harvesting.
Taxable Gains and Loss Estimates – Ally Invest
The figures that we glean from TradeStation concerning our realized gains are only half the story. To get a truly accurate picture of what our potential taxable gain is for an account, we will also need to utilize the Maxit Tax Manager at Ally Invest.
To find Maxit at the Ally website:
- Log in to Ally Invest
- Click on the name/account number for your taxable account on the Snapshot screen
- Click on the “Documents and Tools” menu item at the top
- Select “Tax Center” from the submenu that will appear
- Click on the Launch the Maxit Tax Manager button on the right side of the page under Maxit Tax Manager
- Maxit should launch in a separate window in your browser. You will first see the Dashboard page, which will include a toolbar across the very top with several links on it
- Go to the Gain/Loss Reports section
- Select the link for “Current Year Realized Gain Loss” under the drop down menu
On the subsequent screen, you will see a table at the top summarizing the realized gains and losses that you incurred at Ally prior to transferring your account. These will be broken down into short-term and long-term gains/losses, with a net figure for the entire account tabulated. Below this table, you will see an itemized list of all the transactions which resulted in gains and losses for 2023, displayed in alphabetical order by ticker symbol of the underlying holding.
The realized gains estimate provided by Ally can be combined with the Closed Positions Totals at TradeStation to give a fairly accurate picture of how much taxable income your account earned in 2023.
Executing Your Tax Loss Havesting Sales
Now that we have learned how to use TradeStation and Ally Invest to estimate your possible taxable income and to determine what unrealized losses you may have for your positions, the only action left is to actually sell off the positions that you plan to tax loss harvest.
We recommend all tax loss harvesting sales take place after you’ve completed all your December trades. AutoPilot and Lattco PRO users can place the sale trades direct from the software.
To find the Tax Loss Harvesting Tool within Lattco:
- Hover over the Help menu, and select Tax Loss Harvest Tool
- Select the account that you wish to perform tax loss harvesting
On the following page, you will see a list of the open positions in that account along with an orange “Tax Loss Harvest” button on the right. Clicking on the button will bring up an order form that will have you sell all of the shares of the holding that you own. After you have placed the order, the shares will have been sold at TradeStation, but the holding will be left open in your Lattco account with a quantity of 0 shares. This will help to ensure that your Stake and Allocated Cash figures remain correct for the next Trade Day.
After the 31-day wash-sale period has elapsed, you can log into your TradeStation account and place orders in the Web Trading Live Portal to purchase the same amount of shares of any tax loss positions (we do not, at this time, have the ability to do this in Lattco PRO or AutoPilot). After you have completed re-purchasing your tax loss positions, please return to the Tax Loss Harvest Tool. By clicking the big green button at the bottom to confirm that you have re-purchased your position, we will be notified to make the final adjustments to your holdings.
You will need to complete all tax loss harvesting prior to the close of the market on December 29th, the last business day of 2023, to ensure that the loss is counted for this year. Tax Loss Harvesting should only be used after careful consideration of your entire tax situation. It is recommended that you consult a tax professional before you use the Tax Loss Harvesting process. Tax Loss Harvesting should not be used in non-taxable accounts.
Snider Advisors has an economic incentive for recommending that clients open an account with TradeStation. Specifically, Snider Advisors receives a flat referral payment for each new customer it refers to TradeStation. More detailed information about the relationship and our fiduciary responsibility can be found in our ADV Part 2A. Clients may contact Snider Advisors with any questions about the terms of the agreement with TradeStation.