Tax Loss Harvesting For The Savvy Investor

Steve Ballmer, the former CEO of Microsoft, had a brutal trading day on July 24th, 2015. The stock trades done on his behalf netted losses of over $28M.

At least that’s how it looked on paper, but the reality was somewhat different. Let’s first understand the concept behind these savvy trades.

You buy 100 shares of a stock at $50 per share and the price goes down to $35. You’d like to show the loss on your income taxes but still think the investment is a good one.

So you sell your shares at $35 creating the loss on paper, but then immediately buy them back at the same price maintaining your position in the investment. This is what’s known as a Wash Sale.

Under IRS rules, if a sale and repurchase of the same security happens within thirty days, the loss can’t be deducted. But that isn’t what Mr. Ballmer did to establish a taxable loss.

In his case he sold off securities in Australian mining company BHP and oil giant Shell. Both of these companies have two different versions of common stock that are publicly traded.

In both instances, he sold off one version of the stock, and immediately bought the other. Under IRS rules this wasn’t a wash sale because the securities weren’t the same, and the loss that was established was deductible.

And since the securities perform similarly, he was able to maintain his position. It was literally the best of both worlds.

Ballmer’s not-so-bad-day was a carefully planned strategy carried out by Goldman Sachs. They did the same thing on his behalf with hundreds of different securities.

Most of the companies traded didn’t have two different types of common stocks. But it was easy to sell one investment, and find another that would perform similarly.

And it was all perfectly legal.

Over a five year period, it’s estimated that this tax loss strategy provided $579M in deductible losses to Mr. Ballmer. The savings from those losses would amount to at least $138M in tax savings.

I don’t want anyone to think that I’m suggesting this type of trading strategy. Although it’s perfectly legal now, the IRS is probably coming up with some way to make it a non-deductible loss.

Let me leave you with this.

Investing can be a difficult concept for many Entrepreneurs. In many ways, it runs counter to what makes us successful in the first place.

The skills necessary to create a profitable enterprise are normally about the aggressive pursuit of profit. You’re out everyday chasing down customers and additional sales.

The concept of saving money can also work well in that scenario. You make so many sales and so much profit, that even you can’t find a way to spend all of the money.

But investing isn’t an active activity. In the world of investing, we must sit back and be patient. Many times, we need to give our money to others and give up control completely.

For many entrepreneurs, this is simply impossible.

But if you’re going to retire well, you need to do all three. You need to learn how to make it, save it, and invest it.

At the very least, you need to get your money working for you to take the bite out of inflation. Start now my Brothers and Sisters. The only thing better than today would have been yesterday.

We’re all going to get through this. Let’s get through it together.

Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Employee Retention Credits, M&A Due Diligence, Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,

Sincerely yours,

Chris Amundson
President
Accounting Solutions Ltd.
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