Finance
Taxes and Finance: Understanding tax terms – wash sales
![Taxes and Finance: Understanding tax terms – wash sales](https://www.ukiahdailyjournal.com/wp-content/uploads/2018/05/cropped-ukiah-daily-journal-icon.png?w=512&h=512)
Surprise! Your stock loss is not deductible.
You may be considering booking stock losses due to recent market drops. Selling losers can be a great strategy when these losses can offset other gains and up to $3,000 of your ordinary income. However, there is a little-known rule called the wash sale rule that could surprise the unwary taxpayer.
Wash sales explained
If the wash sale rule applies to your transaction, you cannot immediately report a loss you take when selling a security. Per the IRS:
A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
- Buy substantially identical stock or securities,
- Acquire substantially identical stock or securities in a fully taxable trade,
- Acquire a contract or option to buy substantially identical stock or securities, or
- Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA.
Why the rule?
Many investors were selling stock they liked simply to book the loss for tax reasons. They then turned around and immediately re-purchased shares of the same company or mutual fund. If done repeatedly, shareholders could constantly be booking short-term losses on a desired company while still owning the shares in a chosen company’s stock indefinitely. Clever shareholders would even purchase the replacement shares prior to selling other shares in the same company to book the loss.
Some ideas
How does one take action to ensure the wash sales rule works to your advantage?
Check the dates. If you decide to sell a stock to book a loss this year, make sure you haven’t inadvertently acquired the same company’s shares 30 days prior to or after the sale date.
Dividend reinvestment. If you automatically re-invest dividends, you will want to make sure this doesn’t inadvertently trigger the wash sales rule.
It’s only for losses. Remember, the wash sales rule only applies to investments sold at a loss. If you are selling stock to capture gains, the rule does not apply.
Consider similar transactions. The wash sales rule applies to buying and selling ownership in the same company or mutual fund. With the exception of some common versus preferred stock of the same company, buying and selling similar – but not identical – shares does not apply to the wash sales rule.
If your loss is ever disallowed because of the wash sales rule, you can add the disallowed loss on to the cost of the new security. When the security is eventually sold in the future, the previously-forfeited loss will be part of the calculation of future gain or loss. This also includes the original stock’s holding period to help define the transaction as a short-term or long-term sale.
Originally Published:
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Finance
Goodwin Sponsor Finance Atty Joins Davis Polk In NY – Law360 Pulse
![Goodwin Sponsor Finance Atty Joins Davis Polk In NY – Law360 Pulse](https://assets.law360news.com/1858000/1858268/7c2c63849d6a3f2a425bec940866713338af2acd-35457_ncaro-3x2.jpg)
Davis Polk & Wardwell LLP picked up a Goodwin Procter LLP partner of four years with experience representing a wide range of private equity-related clients in leveraged finance transactions in New…
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Finance
Most shorted S&P 500 financial stocks at June's end (NYSEARCA:XLF)
![Most shorted S&P 500 financial stocks at June's end (NYSEARCA:XLF)](https://static.seekingalpha.com/cdn/s3/uploads/getty_images/551986071/image_551986071.jpg?io=getty-c-w750)
Average short interest across S&P 500 financial stocks was flat at 1.48% of shares float as of the end of June, compared to the prior month.
The S&P 500’s financial sector (NYSEARCA:XLF) was up 12.7%, as compared to the broader S&P 500 index’s rise of 17.7% since the start of the year.
The largest contributor to the index, Berkshire Hathaway (BRK.B) had a short interest of 0.77% of the total float, while the next biggest contributor, J.P. Morgan’s (JPM) short interest, stood at 0.81%.
JPM’s Q2 earnings trailed the Wall Street consensus, as the company bolstered the amount of money it sets aside for potential credit losses.
Stocks with the largest and least short positions:
Ranked by short interest as a percentage of shares float
Franklin Resources (BEN) continued to reign at the top as the most shorted stock at 6.48%, with 18.4M shares sold short.
FactSet Research System (FDS) was the second-most-shorted financial stock at 5.42%, followed by Regions Financial (RF) at 4.33%.
Mastercard (MA) also held onto its position of being the least shorted stock at 0.53%, with 4.4M shares sold short, and preceded by S&P Global (SPGI) at 0.72%.
Industrial Analysis:
Average short interest as a percentage of floating shares
Consumer Finance held on to its top spot for being the most shorted industry within the financial sector, with 2.32% short interest as of June end, up from 2.25% as of the end of May.
Financial Services is the second most shorted industry within the financial sector, with 1.78% short interest as of end-June, down from 1.99% in May.
Capital Market, came in at third, with short interest at 1.73% at June end, marginally down from 1.77% as of May’s end.
Finance
Roots of Impact attracts funding to develop impact-linked finance | Impact Investor
![Roots of Impact attracts funding to develop impact-linked finance | Impact Investor](https://impact-investor.com/wp-content/uploads/2024/07/CDA-5.jpg)
The German investor believes offering financial incentives to companies if they hit social impact targets should play a greater role in investment strategies.
Roots of Impact (ROI) is seeking to build momentum behind impact-linked finance (ILF) – an investment technique the Frankfurt-based company helped to pioneer – by encouraging its wider use, either as part of blended finance or directly from impact investors.
The company has just closed its first financing round, funds from which are intended to help scale up its activities, which are increasingly focused on building infrastructure needed to better establish ILF in the market and bring others into the field, in addition to the management of ROI’s own impact-linked funds.
Practising what it preaches, ROI’s financing round is itself structured as ILF, with the company set to be financially incentivised to grow the ILF market.
Investors include the Delta Fund, the European Social Innovation and Impact Fund (ESIIF), and BMH, the public investment arm of the German state of Hesse. The Swiss Agency for Development and Cooperation(SDC), a long-time collaborator with ROI on developing ILF, provided catalytic funding to the round. The size of the financing has not been revealed, though ROI said it was a seven-figure amount.
ILF is essentially the provision of financial incentives to market-based enterprises to produce additional social impact that would not happen without those incentives, often as part of financing deals to fund their wider activities. That contrasts with social outcomes contracts or social impact bonds, which are mainly aimed at attracting investment to social enterprises focused on achieving impact goals. As ROI puts it: “ILF is about tweaking enterprises towards better outcomes, not about paying for social interventions”.
ILF has its roots in social impact incentives (SIINC), a concept pioneered by ROI and SDC eight years ago. SIINC provides cash incentives to enterprises to achievement positive outcomes conditional on raising investment – so an investor makes a repayable investment, while an outcome payer such as a DFI or government makes premium payments based on social outcomes.
SIINC was first applied by ROI and SDC in Latin America in 2016, mainly as a blended finance technique. Since then, the partners have sought to broaden the scope of ILF, developing more techniques that could be use directly by both impact investors and the blended finance world.
“With a little bit of creativity, you can tweak any financial instrument to become an impacting-linked finance instrument, because there are always terms you can adjust in relation to impact,” Bjoern Struewer, Roots of Impact’s founder and co-CEO told Impact Investor.
“In a loan, you can adjust the interest rate. In a more innovative structure, for example, you could have a repayment cap that you reduce depending on level of impact, so the company has to pay back less. You can even embed ILF in equity investments,” he said.
Tangible outcomes
ILF has typically been used in areas where tangible outcomes are relatively easy to measure, such as encouraging greater participation and advancement of women in a workforce or customer base, or incentivising power companies to provide costly “last mile” connections to rural communities from an electricity grid.
One example from ROI’s own portfolio is Mexican healthcare provider Clínicas del Azúcar, which was incentivised with SIINC payments to reach more “bottom of the pyramid” patients with its diabetes’ treatments as the company scaled up its operations. Another is Khmer Water Supply Holding (KWSH), where payments were made depending on the number of poorer communities to which it provided piped water.
Struewer said ILF worked best in making impact if the investee company had a clear idea about the impact they could make and realistic targets they could hope to meet.
“It’s not about us telling them: hey, what about your proportion of bottom-of-the-pyramid clients – can you Increase that? it’s them telling us, I could do this if you help me. Then you have a conversation, and they typically come back with very exciting ideas,” he said.
Blended finance potential
ILF should become more widely adopted technique in the blended finance toolbox and beyond, Struewer argued.
“For me, impact-linked finance is also a form of blended finance, where for the catalytic part of blended finance, you know exactly what you are going to get and how you should size it. For many sectors and topics, it can be the better form of applying blended finance,” he said.
He is optimistic about the prospects for wider adoption of ILF, as might be expected for a CEO that is using ILF incentives as part of his own company’s fund-raising.
“We are shifting our focus from managing our own funds, though we will continue doing that, to put much more emphasis on helping others do the same. This whole strategy works if the overall market grows. So, we want to grow the pie, not defend our market share in a smaller pie,” he said.
As part of its drive to popularise ILF, ROI recently published a report, in which it discusses the evolution of ILF and where the sector could go next.
The details of what targets ROI will need to meet to trigger financial incentives for its own ILF package are due to be hammered out over coming months. However, Struewer is hoping he is pushing at a door that is already swinging open, given elements of ILF are increasingly being woven into impact investment and blended finance packages.
In May, British International Investment (BII), the UK’s DFI, said it was committing €25m in debt financing to Sonatel, the largest telecoms operator in Senegal, as part of an €87m financing package with the International Finance Corporation (IFC) and French development agency Proparco. The financing package ties the pricing of the loan to targets relating to getting more women into management positions in Senegal and expanding Sonatel’s digital skills programmes.
In December, impact investor Acumen launched Hardest-to-Reach, a $250m initiative to develop clean energy markets in underserved parts of Africa. In addition to grants and equity, the initiative is using an impact-linked financing approach to meet the needs of off-grid energy companies as they develop.
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