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How does the tax system work in relation to gains and losses on investments?

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The tax system can be complex when it comes to gains and losses on investments. When you sell an investment, the IRS assesses your overall gain or loss, net of all investment fees. This is known as "capital gains taxes," and the rate at which you're taxed depends on how long you held the investment. If you held your stock for less than a year, the gain is considered "short term" and is taxed at federal ordinary income tax rates. If you held your stock for more than a year, the gains qualify as "long term," which generally offers lower tax rates. However, there is a way to avoid capital gains taxes: charitable donations. This is where Daffy comes in as a great option for a Donor-Advised Fund (DAF). Adam Nash, CEO and co-founder of Daffy, explains a strategy called tax loss harvesting. This strategy involves selling securities at a loss to offset gains taken that year or to save on your overall taxes against income. However, there's a rule called the wash sale rule, which states that if you sell a security, you can't buy it back for 30 days. This can be tricky when dealing with individual companies, but if you have index funds, it's simpler. Daffy, a not-for-profit community built around a modern platform for giving, can help you navigate these complexities. With Daffy, you can make the most of your investments while also contributing to causes you care about. Remember, the information provided here is for educational purposes only and should not be considered tax advice. Always consult with a tax professional to assess your specific tax situation. Get started with your Daffy account today and discover a smarter way to manage your investments and make a difference.

Please note that the information contained on this page is for educational purposes only and should not be considered tax advice. Any calculations are intended to be illustrative and do not reflect all of the potential complexities of individual tax returns. To assess your specific tax situation, please consult with a tax professional.

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