BPIQ.com Can Help with Tax-Loss Harvesting Decisions
- Nov 21, 2021
- 4 min read
SUMMARY
Tax-loss harvesting for biopharma investors, like all investors, is an effective strategy for reducing tax gains in a year
2021 has been a down year for smid-cap biopharma indices, and thus provides opportunities for loss harvesting
BPIQ.com's catalyst calendar and Pipeline Screener are helpful tools for making smart decisions when considering harvesting losses for biopharma stocks
We have learned that it is prudent to hold some shares of a long-play stock when harvesting in a year.
We have learned to reinvest our cash in other biopharma stocks when harvesting losses to avoid missing out on a biopharma runup in the last weeks of a year.
We have learned to sell most of our shares of stocks that are down, even for our long plays, because tax harvesting for that stock by the market overall, continues to put downard pressure on that stock through year's end.
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Tax-loss harvesting is important to biotech investors, just like any other investors. Tax-loss harvesting, which happens most frequently near the end of the year, is selling a stock position, or closing an option position, to help reduce/offset an investor’s or fund’s tax exposure from capital gains that year. This is a common tax strategy for U.S. investors to help manage the effect of taxes on their investment gains in taxable accounts. Retirement accounts have deferred taxes, and thus are not part of such a strategy (See TurboTax article on loss harvesting) Whether a gain or a loss is long-term or short-term can affect decisions about which assets to sell to offset gains. Generally, a loss first offsets a gain of the same short-term or long-term type, and then the other type (See this TurboTax post for more details). Thus, before selling positions to offset gains, you should be careful, and consider discussing this with your tax professional first.
Unfortunately for biotech investors, years like 2021, where small and mid-cap biotech indices are mostly down (XBI is down 13.40% this year as of 11/19/21), can provide quite a few stock loss opportunities to offset gains. Such gain(s) could have been from biotech stocks in your portfolio that rose significantly in 2020 for example, a much better overall year for biopharma stocks that you sold for a gain at some point in 2021. In our BPIQ database, we find 224 companies that are down more than 33.0% thus far in 2021, but only 108 companies that are up by that amount. In our expanded version of this article on BPIQ.com, we provide those ticker listings.
Our catalyst database and Mover lists on BPIQ.com can help you in your tax loss harvesting decisions. Before selling a stock for a loss, it is a good idea to check our BPIQ.com database to confirm whether there is an upcoming catalyst even that year. Furthermore, it is prudent to check our Movers lists to see if we believe an upcoming catalyst this year has a reasonable chance to significantly move the stock price.
Of course, if there is an upcoming Mover event this year, it may make you want to harvest the loss more, or less, depending on your predictions regarding the catalyst event. If you are positive about a readout, you may not want to take the harvest and miss the opportunity to hold through the readout. Alternatively, depending on how you feel about the likelihood of success of the readout, you may want to sell the stock and harvest the loss before the readout to avoid some potential additional losses. Remember that most Mover readouts result in a negative stock move.
The proceeds of the harvested loss sale(s), and the gain sale(s) too of course, can be reinvested in other biopharma companies for example. However, buying the same stock within 30 days runs afoul of the wash rule and eliminates the tax offset opportunity (See TurboTax article on loss harvesting). Our Pipeline Screener on BPIQ.com can help you find other companies to invest in, for example with similar drugs directed to similar mechanisms of action. Our sister company Amp Biotech Research's experiences harvesting biopharma stock losses have taught them a number of lessons. See the expanded version of this article in the Amp forum on BPIQ.com for rules based on those lessons, to help you be more confident that your biopharma stock tax harvesting decisions will be prudent decisions.
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