You better watch out…you better not pout…I’m telling you why. Cause the stock markets are pretty jittery these days. The huge swings are making investors quite nervous. So, I hope you were on the nice list this year and have a bunch of capital gains. .
Ordinarily, December is the time to evaluate your portfolio. We check our gains and losses for the year. If you have stock market gains for the year, you may incur an income tax bill, come April. You are taxed for the cumulative stock market gains to December 31st each year. This is where you must strategize your end of the year to limit your capital gains and if advantageous, realize any capital losses. This also works with capital gains on real estate.
For example, if you have total capital gains for 2018 to date of $10,000, this would end up costing about $2500 at the highest income tax rates. If you have unrealized losses— losses on stocks that you have not as yet sold—then you have an opportunity to sell some of these stocks before the end of the year, realize the losses and reduce or eliminate your income tax bill. The tax rate on capital gains at the highest rate is about 25% depending in which province you reside. So any losses realized will reduce the $2500 income tax bill by 25% of the losses.
If you have total losses on stocks for 2018 to date, you may carry back these losses up to 3 years back, but only against taxed capital gains.( I know, I know this is getting kind of dry at this point, but stay focused, it’s still important! Do the planning and then, you can open your gifts!) If you don’t have capital gains during the past three years, then you can carry forward the losses indefinitely.
Another option, if you have capital losses, is to realize capital gains on stocks where you are up. This will reduce your loss carryforward and works if you want to take your gains now or if you are trying to time the market. Either way, any sale of stocks, should be made based on economic factors, the same reasoning that made you purchase a stock should be taken into account when selling a stock. Not just the income tax factors.
It should be noted that if you sell a stock and repurchase it within 30 days (before or after the sale date), the taxation department will consider it a “superficial loss” and you won’t be able to use it to offset capital gains. Therefore, the best solution is to wait 30 days before repurchasing the same stock.
Don’t wait until last day, December 31st to sell stocks for capital losses. The official date of a sale is the settlement date which tends to takes 2-3 business days. So, check with your investment advisor to ensure you get your order in under the wire.
Now! You are good to go… and are ready for the New Year…. Happy Holidays!!!
December 17, 2018