It recently occurred to me that the financial year is about to draw to a close, and as a result it’s time to start thinking about taxes.
As I have made the switch from a local bank in Italy to Interactive Brokers, I have many more obligations to follow in 2016 tax reports. On the other side I am given the chance to compensate losses with gains, and this is quite interesting in the light of rebalancing some positions that have suffered during this year. Apparently by the overcomplicated Italian tax system, options proceedings are considered as “capital gains” from selling stocks, while dividends are considered differently and cannot be used to cover eventual losses.
But Option premiums can, and this means that I have X000 euro worth of losses that I can recoup.
With this system I do not pay taxes on the gains, as I use them to rebalance losses that will happen when I sell those stocks that are in the red.
Take for example TROW, one of my core holdings, currently trading -13% from my average price. By selling and taking the loss, I can immediately buy it back at the same price, effectively reducing my average load by 13% but also increasing dividend yield in that way.
Of course paying taxes is a great thing because it means that you are making money, but as I am not concerned too much about the short term performance, I can focus on optimising dividend yield, without really loosing anything under the “total return” point of view (value of the fund will stay the same), reducing the amount of taxes that I will have to pay next June for 2016 and increasing dividend yield.
In a way I turn losers into winners 🙂 (it’s not exactly like that, but let’s say that it’s nice to think it in that way!)
Is any of you in the same situation by any chance? It would be nice to hear what people think of these accountancy strategies…