Starting this new series to share all the tea I learned while working on wall st. Let me know if there are any specific topics you want me to cover! This time I'm talking about tax loss harvesting, a loophole essentially every wealthy person uses to lower their tax bill, and how you can use it to your advantage! #taxtips #PersonalFinance

How rich people avoid taxes and you can too! Welcome to episode one of Secrets of the Wall Street Boys Club, where I hand a spill the tea on all the things I learned during my time essentially undercover on Wall Street. Today I want to talk about tax loss harvesting. If there's one thing I learned that wealthy men hate, it's paying taxes. Second, perhaps only to spending time with their families based on how often they were in the office, but I don't want to make assumptions. The fundamentals of tax loss harvesting are of trying to find ways to show the IRS that you lost money, so there's less taxes for you to pay. So how can you show you lost money without actually losing money? Let's say you have $500 of stock in Apple, and it falls to 400. You might think, "Oh, I can sell that stock and take a hundred dollar loss and reduce my taxes," and then immediately just rebuy Apple stock. Problem is there's a rule against that. It's called the wash sale rule. You can't buy the identical security within 30 days of selling it, otherwise the losses negate it. But Wall Street found a way around that. Here's the loophole. Let's say you have an index fund like VTI that tracks the US stock market. Let's say you have $500 invested in VTI. The stock market falls 20%, your 500 is now worth 400. You want to take $100 of losses for tax reasons. What you do is you sell the VTI, and you buy a slightly different but basically similar index funds like the eye shares version, ITOT. It also tracks the US stock market, but technically a slightly different index. It performs pretty much identically, but you swap one for the other. You still have the same amount of equity exposure, but now you have $100 of losses on your taxes. Yay! Now, the primary benefit of realized losses on your investment is to reduce the capital gains on other investments. And so you might think, "I'm not a big private equity tycoon. I don't have millions of gains to offset. I'm just a normal person with a W2 job. Is this still worth it for me?" Yes, it is. Because there is a rule that every single year you can write off up to $3,000 of these realized losses against your ordinary income. That's huge. So let's say your total marginal tax rate is 40%. When you take that $100 loss from tax loss harvesting, you're reducing your income by $100, which means you're reducing your taxes by $40. If you do a bunch of tax loss harvesting throughout the years, you're just shuffling around your stocks. If you can get up to $3,000 and you're at a 40% tax rate, you can reduce your taxes by 40% of $3,000, which is $1200. You can put $1200 back in your pocket. It is a nice little hack. I try to get losses every single year. So stay tuned for more episodes of this series, where I will tell you more of the secrets and tips and tricks that I learned in this boys' clothing. And I want to bring that knowledge to you, my girlies.