Maximize this Timely Investment Strategy
No one wants to hear the word “loss” when discussing their investment portfolio, but when it comes to tax loss harvesting, investors might be pleasantly surprised. This timely strategy is one advisors often use to offset those pesky losses that can sometimes arise in your portfolio. Still, many investors are often unaware of what tax loss harvesting is exactly.
What is tax loss harvesting?
Tax loss harvesting is when advisors reduce capital gains taxes in a taxable non-qualified account when the market is down by liquidating the positions(s) and locking in losses. This means selling investments at a loss and then purchasing other similar assets, which maintains a healthy portfolio allocation (i.e. stock to bond ratio). Simply put, this strategy is implemented to reduce overall taxes on your investments.
Benefits and Pitfalls
Although it may seem counterintuitive to lock in losses, one major benefit is that you can write off these losses on your tax return in order to offset taxes. You can also offset other income you might have by deducting certain limited amounts in realized losses.
There are, however, some pitfalls and stipulations to be aware of. Tax loss harvesting must be done in a taxable account; it cannot occur in an IRA account. There is also the wash sale rule, which stipulates that if you liquidate a position(s) at a loss, you cannot buy the position(s) back for at least 30 calendar days. If you do buy it back, it’s a big cost that negates the loss.
The Storen Financial Advantage
Our team includes many registered investment advisors who are also qualified CPAs. This combination means that we’re adaptable and nimble, responding quickly to the changes of a volatile market with tax minimization in mind. What’s more, we don’t just focus on the performance of your portfolio. Our daily team collaboration better equips us to see the whole picture while we advise you on your specific situation.
Want to learn more?
Here are a few more resources to help answer your questions…
Can Tax Loss Harvesting Improve Your Investing Returns? – Forbes Advisor
Tax-Loss Harvesting: Definition and Example – Investopedia
Wash-Sale Rule: What Is It, Examples, and Penalties – Investopedia
Presented by Brian Biggs, CPA – Financial Advisor, Senior Tax Accountant
Learn more about Brian and the rest of the Storen Financial team here.