It’s easy to make mistakes as a new investor. If you fall under the wash sale rule, not only do you have to sell your stock, but you have to add the loss to your income taxes as well! It’s an easy mistake to make, so we’re here with some tips on how to avoid the wash sale rule and keep your money. After all, who doesn’t want that? Here are five ways to avoid the wash sale rule! How to avoid the wash sale rule and keep your money
What is the wash sale rule?
The wash-sale rule is a tax regulation that prevents investors from claiming a loss on a security, even if it has decreased in value since it was purchased, if another security of the same type has been purchased within 30 days before or after this purchase. The only way to circumvent this is by waiting more than 30 days before purchasing another security. This can be done by either waiting for 31 days from when you bought the first investment or by purchasing at least 31 calendar days before you sell an investment. How to avoid the wash sale rule and keep your money
Why is the wash sale rule important?
The IRS defines a wash sale as selling shares of stock or securities at a loss, acquiring substantially identical securities within 30 days before or after the date of the sale, and holding them until they are sold. The term refers to a situation where an investor tries to claim a tax deduction for a loss by swapping out one investment for another. The wash occurs when you sell stocks that you have held for less than 30 days in order to purchase other stocks with similar characteristics but different prices.
How can you avoid the wash sale rule?
To avoid the wash-sale rule, you need to sell or trade securities at a loss before you buy substantially identical securities 30 days before or after your initial sale. That way, when you go back into the market, it won’t look like you’re trying to get around capital gains taxes by selling low and buying high.
What are some other things to keep in mind?
The following are some other things to keep in mind when trying to sidestep the wash sale rule:
1. Try not trading for at least 30 days after a purchase. 2. Avoid buying and selling securities of companies that are in the same industry or similar fields (e.g., don’t buy and sell both Microsoft stock and IBM stock). 3. Be cautious with mutual funds, since they may hold securities that trigger the tax penalty on a regular basis. 4.