Losses, reporting and tax planning

Losses are deductible

You can deduct a capital loss from capital gains and any remaining part from other capital income; the right lasts for the next five years. Still, don't sell just for the tax benefit. Don't let the tax tail wag the investment dog.

The tax year, reporting and prepayments

In Finland, the taxation of investments is mostly handled automatically: domestic brokers report sales and dividends to the Finnish Tax Administration, and the details appear on your pre-completed tax return. Check the details anyway. Foreign trades and transfers in particular can be missing, and you are responsible for the information being correct. For larger capital gains you may need to pay prepayment tax to avoid interest on residual tax. Keep records of purchase prices and dates so that the deemed acquisition cost and FIFO are applied correctly.

Tax planning vs. tax-driven investing

It pays to optimize your taxes, but taxes should not drive your investment decisions. As the saying goes: don't let the tax tail wag the investment dog. Don't sell a good investment just to book a loss, and don't keep a bad one just to avoid tax. Sensible tax planning is structural: choose a tax-efficient account and share class, use the deemed acquisition cost and the right to deduct losses, and let the tax be deferred for as long as possible. The investment decision itself is made on the basis of return and risk, not because of tax.

The most common tax mistakes

A few mistakes keep coming up: unnecessary trading, which keeps realizing gains and taxes and interrupts tax deferral; choosing a distributing ETF when an accumulating one would be more tax-efficient; not recording purchase prices, so the taxation of a sale goes wrong; forgetting the right to deduct losses (five years); and letting tax drive investment decisions. You can avoid most of these by choosing a tax-efficient structure at the start and keeping trading to a minimum.

How to minimize tax within the law: a checklist

Tax efficiency comes down to a few points:

• Account: an equity savings account for an active stock picker, a book-entry account for an ETF investor.
• Share class: an accumulating ETF defers dividend tax inside the fund.
• Tax deferral: avoid unnecessary trading; let the gain grow untaxed.
• Deemed acquisition cost: a long holding (10 yrs or more) gives you the 40% deemed cost.
• Losses: deduct them from capital gains and other capital income (5 yrs).
• Domicile: for a European investor, often Ireland (IE) because of withholding tax.

Always check the current rates and limits with the Finnish Tax Administration. Taxation can change.

This content is for information purposes only and should not be construed as investment advice or a recommendation. Investing always involves the risk of losing capital. The value of financial instruments and investments can go up or down, and past performance is no guarantee of future returns.