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