Turning Losers into Winners

IIMG_20151111_171436761t 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…




9 thoughts on “Turning Losers into Winners

  1. It sounds a bit complicated in Italy.

    Here in the UK it is easy for the average small investor to avoid tax by investing within a tax-free ISA. Each individual can currently shelter up to £15,240 in either cash savings or stocks & shares account. This will be increased to £20,000 from next April.

    In addition savers do not pay tax on the first £1,000 of savings interest and have no liability for tax on the first £5,000 of dividend income.

    Liked by 1 person

    1. Ciao DIY,
      The ISA system is probably the best out there, but unfortunately we’ve got a different one, where dividend and capital gains are taxed DIFFERENTLY (to give one example)… When I was living in the UK it was all much simpler, but back then I was studying so there were not a lot of savings to be done… 😦


  2. When you sell at a 13pct loss and buy back at that price, how does that improve your yield? it does compared to your “new” buy price, you then would need to book the loss somewhere, no?!? What do I miss in understanding the Italian system?


    1. Ciao ATL,
      By buying the same amount of share at a lower price I increase Yield on the new average price. Of course by selling you take a loss, but that is compensated by the gains that one is making selling other stocks/options. If I leave everything as it is now and assuming that prices do not change, at the end of the year I will have a gain (due to the option trading), that will be taxed and so on. By taking a loss I can compensate these gains, so in the end I do not have to pay taxes on them, and at the same time I can lower my entry point, hence increasing yield. Hope it’s more clear (and trust me it’s hard to get my grips around it also for me…)

      Liked by 1 person

  3. Hi Stal,
    I agree with AmberTreeLeaves – I don’t see how selling and buying it back at the same price improves your yield. The stock still pays the same dividend for (the same) share price.
    The US tax law aims to avoid wash sales – you can’t claim a deduction if you buy replacement shares 30 days before or after the shares that you sold. The UK has some provision against it too I believe.
    Best wishes,


    1. Ciao DL,
      Yes, I am taking the loss of course, the stock could come back 13% and I will just have to pay taxes on the capital gain that I do not compensate. The stock will still pay the same amount of money, buy yield will increase due to a lower average price.
      I have to get info about wash sales here in Italy, the most I managed to understand is that if you buy and sell the same day banks tend to calculate an average price out of all the transactions, so that basically it makes sense to “sell today and buy tomorrow”, so that there is no averaging coming into play. Either than that I haven’t found other laws, but I am not done with research yet.
      But the point remains, if the system is how I expect it to be (no wash sales regulations, compensate plus with minuses), is it actually worth it? Of course holding period is very long so right now I am not too much concerned about total returns…


  4. In the US if you sell a stock at a loss and buy it back right away its a wash sale. A wash sale occurs when an individual sells or trades a security at a loss, and within 30 days before or after this sale, buys a “substantially identical” stock or security, or acquires a contract or option to do so. Does this apply in your country too?

    A wash sale disallows an investor from writing off the loss.


  5. Ciao IH,
    Actually I am trying to figure out if we have a similar system here in Italy, it’s incredible how there are sooooo many accountants but very few of them actually know how these matters are dealt with. What I managed to find out so far is that if you have an italian broker (they take care of all tax issues) normally if you buy and sell on the same day they will place your bought back stocks at an average price between the two deals as they occur on the same day. But it’s not my case because I have an international broker that forces me to file my own tax returns. I hope that within this week I can come to grips with this point and be able to move, if it’s doable (legally) then I need to move in and do it. Mind you, I did already some wash sale back in September, so technically I am already into it, but if there are regulations that I do not know it’s better not to increase potential damage… 😛
    Ciao and thanks for commenting!


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