nvidia's Revenue profit and cash flow are soaring as its gpus have proven the most successful at training and influencing large language models and other artificial intelligence use cases that success is drawing many investors to Nvidia stock and unlike other popular investing trends like meme stocks and cryptocurrencies and EV stocks which I have described as being overvalued the AI investing moment is one that I have supported in fact I've had Nvidia stock on my list of top stocks to buy all year long in 2024 but in this video I'm going to get more specific I'm going to share with you the best strategy for buying Nvidia stock rather than just talking about whether or not it's a buy hold or sell I'm going to share with you how and when to buy shares of Nvidia stock I'm going to share with you how to capitalize on tax loss harvesting and I'm going to share with you an excellent strategy for transferring your wealth to the Next Generation now there's a lot to cover so let's get right into it I want to thank the mly fo for sponsoring this video visit fool.com parev for the 10 best stocks to buy now okay so to get the most out of this video we need to understand some rules some IRS rules some Tax Strategies and things of that nature so that when we go to discuss when and how to buy shares of Nvidia stock we have a basis of what I'm talking about okay firstly we need to understand wash sales we need to understand what this means so this is according to the IRS publication 550 and it says that you cannot deduct losses from sales or trades of stock or Securities in a wash sale a wash sale occurs when you sell or trade stock or Securities at a loss and within 30 days before or after the sale so if you buy substantially identical stock or Securities if you acquire substantially identical stock or Securities in a fully taxable trade or if you acquire a contract or option to buy the same shares or security so let me simplify what this means this means you can't take advantage of tax loss harvesting because of this wash sale rule if you buy or sell a stock within 30 days of each other also you can't buy or sell a very similar investing instrument within that time for nvidia's example you can't sell Nvidia stock at a loss to take advantage of tax loss harvesting and within that same time frame buy options for Nvidia stock because you still have exposure to Nvidia stock the IRS says no no no no no I see what you were trying to do there that's not not going to fly so you can't sell Nvidia stock and then buy Nvidia options to try and capitalize on the tax loss harvesting okay so we got to understand this 30-day Rule and I've accounted for that for my strategy on how and when to buy Nvidia stock but we needed to understand this so that we can understand why I've suggested the strategy I'm going to suggest okay so the next thing I want us to understand is tax loss harvesting all right so in order to capitalize on tax loss harvesting you need to understand short-term losses short-term gains long-term losses and long-term gains short-term losses and gains are for stocks that you hold for 12 months or less and longterm are for those that you hold for 12 months or more so the IRS allows you to D deduct from your ordinary income up to $3,000 per year in losses so for example if you hold Nvidia stock and you lose $3,000 on Nvidia stock you can deduct that from your ordinary income this year now for losses in excess of $3,000 you can carry those forward for future years and deduct $3,000 per year in future years until you completely take advantage of your losses so $3,000 per year but you can carry forward losses into the future now at this point I will highlight I'm not a CPA I have a CFA chartered financial analyst and so I would recommend for all of these rules to double check with your CPA or your accounting professional before taking advantage of these strategies okay and lastly for the rules that I'm going to discuss is the excellent strategy for passing down wealth to the Next Generation so in terms of taxes the cost basis of inherited stock is the value at the time of the original owner's death not the value when the stock was originally purchased the person inheriting the stock only owes taxes on the change in stock price between when it was inherited and when it was purchased I'm sorry when it was inherited and when it was sold that means if you bought a share of Nvidia stock today at $100 and you hold it for your entire lifetime and the stock price Rises to $2,000 that's a big gain there right from two thou from 100 to 2,000 that's a big profit there if you were to sell that stock you would owe taxes on it however in this interesting loophole you can hold on to that stock until the time of your death and then pass it down to the Next Generation and they will not owe that capital gains tax when they inherit the the stock they'll inherit it at that new stepped up basis at the time of your death let's say the stock price was $2,000 when they inherit the stock when your next Generation inherits the stock they'll inherit at $2,000 and so if they go to sell the stock one month after inheritance they will not show any capital gains because their cost basis will be at that higher level so this is a great way a tax efficient way for passing down wealth from one generation to another okay so now that we understand the rules let me share with you the strategy okay so here I've created a nice little diagram on the strategy for purchasing Nvidia stock how and when to buy Nvidia stock all right so on this left hand side here I have the date of purchases and you'll notice I've spread out the date of purchases 3 months apart so July 1st I'm sorry January 1st uh April 1st July 1st and October 1st spreading them out once every 3 months and so of course if you spread out your purchases like that you're rarely going to buy it at the same price right the price is fluctuating so let's say your cost basis on your January 1 purchases are $102 per share and then it goes up to $135 per share and then it goes down to $115 per share and then it goes down to $82 per share and so like most investors when the stock price drops by this much from 135 to 115 and then 82 you're going to likely want to increase your number of shares purchased right so when shares were at 102 you started a position with 200 and then when they got up to 135 you didn't want to buy as many because the price is much higher you bought only 100 and then when the shares dropped to 115 you capitalized you went in at 300 shares and then at 82 you really jumped in you bought 400 shares so now you have a total of 1,000 shares accumulated over the course of a year but what's beautiful about this strategy is you have four different cost bases you have 400 at 82 you have 300 at 115 you have 100 at 135 and 200 at 102 this provid provides you flexibility this provides you flexibility I'm going to share with you how that works so if you look at your total if you average out your cost basis it's 101.2 101.2 but when you go to sell specific shares you can highlight in your brokerage account you can highlight which shares you want to sell if you go to the options section when you're buying and selling when you're selling I should say it lets you pick at least if you're using the brokerage I'm using I use Fidelity it lets you pick to sell specific shares so you can pick these shares to sell this 100 that you bought at 135 when you go to sell or you can pick selling 100 out of this basket of shares or all 300 of this basket of shares at 115 now you might be saying why is that important why does it matter which 100 shares I sell if I'm selling Nvidia stock anyways right I'm reducing my exposure to Nvidia stock why does it matter which 100 I sell well it matters to the IRS it matters to the IRS because that's how they determine whether or not you gained or lost on the investment so at its current share price of 118 if you sell these shares at 10 the ones you bought at 102 you have a gain of $16.22 so that's a taxable gain you got to pay taxes on that okay but if you sell these 100 shares that you bought at $ 135 you have a loss of $16.78 so that's a loss you can use to offset your income that's roughly uh 16 time 100 so roughly $1,600 $1,700 you can decrease from your taxable income and depending on your tax bracket that's a nice tax savings right so it's 100 shares regardless you're selling 100 shares regardless but you pick these 100 shares because this will give you a better tax position this will optimize your taxes or lower your taxes and then you keep these other shares that you have a gain on okay and then if you know I've had in my comment section many of you say that one of the reasons you're investing in stocks is to pass down an inheritance for your next of K your next generation and so these shares that you have mass gains in are the ones that you can keep and never sell and then pass it down to the Next Generation they'll receive those shares at an elevated cost basis and they will not owe the taxes that you will owe if you sell these shares during your lifetime at a gain but what will happen now let's see if the stock price Falls let's say the stock price Falls to $86 per share now you see I've I've created this model where everything adjusts when I change the stock price so that's why you saw everything adjust here on the gain and loss so now what happens is you have a loss in three of your purchases so you can sell these three lots you can sell all of them and realize losses and these losses are going to exceed your annual allotment of 3,000 and so you can carry them forward in future years and capitalize on those losses and then you can keep these 400 shares you bought because now you you still have a gain on these for $4 each so by splitting up your purchases and you can do this not just throughout one year right you can do this every three months for the next several years and you'll have all these different lots of shares that you've bought at different cost bases and then when you go to sell or if you choose to sell you can pick and choose those shares that you have a loss and capitalize on the tax loss and then keep the ones that you have a gain in so that's the tax loss harvesting strategy that's the strategy you may have heard and combining the tax loss harvesting strategy with that nice loophole for inheritance where your heirs can get your stock at the elevated cost basis really allows you to build wealth efficiently so that your hard-earned wealth stays within your family and doesn't go outside of your family if that's your strategy and that's your interest if you like the video you just saw and you want to see more just like it please subscribe to the channel I can't keep this Channel free without the support of viewers like you and if you're already subscribed thank you and I appreciate your support