Year-End Tax Wins: Tax-Loss Harvesting
Tax-loss harvesting is a strategy where investors strategically sell investments at a loss to offset capital gains, reducing their tax liability. It’s especially valuable for offsetting short-term capital gains, which are typically taxed at higher ordinary income rates. However, while it’s a useful tool, it shouldn’t drive investment decisions at the expense of your broader strategy. Always focus on the fundamentals of your investments and long-term goals.
Key Points:
- Tax-loss harvesting involves selling underperforming assets to reduce taxes.
- Avoid letting taxes dictate your investment choices; prioritize long-term goals.
- Look for significant losses (around 10% or more) to make harvesting worthwhile.
- Consider losses in various types of assets, not just individual stocks.
- A mix of taxable and tax-advantaged accounts offers flexibility for tax efficiency.
- The IRS’s wash sale rule prevents deducting losses if you buy substantially identical assets within 30 days.
- Capital loss carryovers can be carried forward for tax benefits in the future.
- Seek professional advice to navigate complex tax considerations when implementing tax-loss harvesting.
Remember, tax-loss harvesting should complement your overall investment strategy, which should focus on your long-term financial objectives.
Always consult with a tax professional and your investment advisor for personalized advice.
Honorine M. Campisi CPA
