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Tackling the Tax Code to Your Advantage

Look, I am the first to agree that the US tax code is not particularly fair. Among other things, it taxes capital gains at a lower rate than it taxes wage income. So this favors the wealthy, people who have investments and frankly, you know, professionals who work in the investment field and some of their compensation is in the form of capital gains will pay a lower tax rate than

workers who have W2 wage income and will pay higher taxes. Not to mention the fact that there are lower tax rate on corporations than on individuals. I am here, however, to talk about how you can take advantage of the tax code, especially during periods like this of market volatility and dislocation.

Please look at your taxable investments. So I'm gonna talk to you about tax loss harvesting, which you can only do with losses on your taxable investments. Don't even look at the statements for your retirement accounts, your tax deferred accounts, but look at your taxable investments. Do you have any losses?

It's important to consider selling any of the investments that have losses and immediately replacing them with similar investments. So that's the first point. You're not reducing your exposure to the market at a period of time when it's down. That's frankly, when it's on sale and you wanna think about over time adding to your investments, but the IRS

does not think that you're making the same investment. If, for example, you sell a Vanguard S&P 500 fund and buy another fund exposed to the S&P 500, but run by another investment firm. These are seen by the IRS as two different investments. So you can take a tax loss. And the great thing about a tax loss is you can use up to $3,000 of these losses against taxable income, against W2 income, against wage income.

And if you've generated higher than $3,000 of losses, you can carry these losses forward into future tax years. You can also use these losses against capital gains.  Now you may not have a great deal of capital gains that you're taking in your investment accounts right now, but perhaps you've sold a property.

Perhaps you had a vacation home that you decided to sell and generated gains from that sale. Well, your capital losses that you've recognized can be used to offset those gains.  There are other ways to use the US tax code to your advantage, and I'd be happy to talk to you about them. I suggest you reach out to a financial professional, someone like me.

If you have any questions, my name is Laura Rotter of True Abundance Advisors, and I encourage you to go out there and live your life on purpose. Thank you.