I’m sure there’s something crucial I’m not understanding, but it seems like you’re just losing money? I’m trying to learn about investing and I’m so confused
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It feels like losing money because it is. Tax deductions, whether it’s from capital losses or your mortgage interest, are really trading dollars for quarters (or dimes + nickels, half dollars, whatever your tax bracket might be).
Say you donate $10k to charity. You can deduct that expense from your taxes. What most people think that means is you owe $10k less on your taxes. What it actually means is that the government has agreed to not tax that $10k. So this deduction isn’t saving $10k, it’s saving you taxes on $10k, which is about $2,500 if the income is in a 25% tax bracket.
Tax-loss harvesting is a bit more complex, but essentially the same. If you sell stock at a $10k loss, you can avoid paying taxes on a $10k gain somewhere else. But make no mistake about it, you’re still losing $10k and only getting a fraction of that back in tax savings.
If you are eligible for a tax deduction, you absolutely should take it. But you will lose money if your goal is to create tax deductions.
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