Tax-loss harvesting is a strategy to help reduce your tax liability by selling investments that have dropped in value since you purchased them. The losses you realize from selling these investments can be used to offset taxable gains from other investments and can potentially offset up to $3,000 of ordinary income each year. Any unused capital losses can be carried forward to be used in future years.
While the concept is simple, there are a few key points to consider:
- Timing: Opportunities for tax-loss harvesting can arise throughout the year, not just at year-end.
- Wash-Sale Rule: Avoid repurchasing the same, or similar, investments within 30 days of the sale to ensure your loss is tax deductible.
- Tax Rates: Your current and future tax rates may affect the value of harvesting losses now versus later.
- Carryforwards: Capital losses can offset capital gains and, if unused in the year realized, carry forward to future years.
- Investment Strategy: Always keep your long-term goals and risk tolerance in mind when making changes to your portfolio.
Every investor’s situation is unique, and tax-loss harvesting isn’t always the right strategy. We’ve put together a checklist to help you evaluate whether tax-loss harvesting makes sense for you.
While checklists and flowcharts can help you identify different opportunities, we are always available to meet with you to discuss your financial needs and goals, and help to identify what the best opportunities are for you.
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