Tax-loss harvesting is a year-end tax management strategy for investors. The practice involves selling losing investments, booking the losses, and purchasing replacement securities. Investors achieve a desirable portfolio mix and capture capital losses to reduce current or future taxes. Here’s a basic overview of how tax-loss harvesting works:
Identify Losses: Investors identify positions that have declined in value since the purchase date.
Sell Losing Investments: Investors sell the underperforming investments to book the losses.
Offset Gains: The resulting capital losses are then used to offset capital gains from other investments in the current tax year. If losses exceed these gains, investors can offset up to $3,000 of other income. Any remaining losses can be carried forward to future years.
Maintain Portfolio Exposure: Investors may replace the losing investments with similar, but not identical, investments to maintain the desired portfolio allocation. This step is crucial to avoid violating the IRS’s “wash-sale” rule.
Tax rules are complex. Investors individuals should always consult a tax professional or financial advisor before proceeding.
For the third straight month, major U.S. equity indices suffered losses. The Dow, S&P 500 and NASDAQ were down 1.14%, 2.2% and 2.8% respectively in October. The volatility reflected the conflict in the Middle East, mixed economic data, corporate earnings reports and higher for longer interest rate expectations. The S&P 500 breached the -10% correction guideline during the month. Our “Third Quarter Disappointment: What’s Next” piece foresaw this downturn.
Corporate earnings reports were generally positive, but corporate guidance for the next few quarters was generally cautionary, if not negative. Third quarter GDP growth rate was up a remarkable 4.9% lending support to “higher for longer” expectations. Counterbalancing the positive news was increasing inflation growth (3.7%), rising unemployment (3.9%) and a slowdown in new hiring.
The Massachusetts millionaire’s tax is a 4% surtax on taxable income over $1,000,000. The tax became effective in 2023 and made Massachusetts one of the highest taxed states in the nation. Connecticut, Maine, New Jersey, New York, and Washington D.C. all have similar surtaxes.
The following comparison shows the impact for a single earner with $2,000,000 in taxable income. Under this example, the Massachusetts millionaire’s tax assesses $40,000 in additional state income taxes.
The Massachusetts millionaire’s tax creates important planning considerations for high earners. Certain gifting, shifting, and trust techniques may lower tax costs. Outright relocation can provide similar benefits. For decades, BaldwinClarke has helped individuals, families, and businesses understand their tax liabilities and evaluate appropriate strategies.
New Hampshire is no stranger to contradictions in nature, politics, or life. Mountainous frontiers to the north juxtapose oceanfront communities to the east. A state committed to individualism also values civic engagement. Multi-generational residents coexist with droves of new arrivals. The list goes on, but one contradiction deserves closer inspection. New Hampshire is a tax-friendly enclave in a high-tax region.
New Hampshire’s tax-friendly reputation is no secret. For decades, legislators have lured out-of-state taxpayers and businesses with savings opportunities. The results are obvious throughout New Hampshire’s sprawling suburbs and exurbs. Home prices are near all-time highs, commuter traffic grows each year, and commercial development continues to expand.[1] Migration trends appear to be accelerating thanks to the Massachusetts Millionaire’s Tax.[2]
Most understand that New Hampshire has no state income tax. However, several other perks are available to ordinary households, local businesses, and certain trusts. The following sections summarize the state’s key tax advantages. Readers should note that some techniques involve complex laws and strategies. A New Hampshire-based advisor can evaluate suitability and provide personalized guidance.
