It's Year End - Harvest Those Losses!
Tax loss harvesting is a strategy used by investors to optimize their tax liabilities. At year end, we encourage you to review your taxable accounts for assets that have decreased in value. By strategically selling these underperforming investments, investors can realize a capital loss, which is used to offset any gains realized throughout the year. This reduces the tax burden, potentially saving a considerable amount of money.
The benefit of tax loss harvesting lies in its ability to minimize taxable income. Capital losses can first be used to offset capital gains, reducing, or even eliminating the taxes you would pay on those gains. If the losses exceed the gains, up to $3,000 in excess losses can be used to offset other income (such as salary or interest income) for the tax year. Additionally, if the losses surpass the $3,000 limit, the remaining losses can be carried forward to offset future gains, providing long-term tax advantages.
Year-end tax loss harvesting also allows you to rebalance your portfolio without triggering a significant tax liability. It offers an opportunity to sell poorly performing assets while maintaining a similar investment position by reinvesting the proceeds into similar but not identical securities. This maintains the portfolio's desired allocation while taking advantage of tax benefits.
Lastly, implementing tax loss harvesting at year-end requires careful consideration and adherence to IRS rules regarding the "wash-sale" rule, which prevents investors from claiming a tax deduction if the same or substantially identical security is repurchased within 30 days before or after the sale. Therefore, you need to be mindful of this regulation when executing tax loss harvesting strategies.
Tax loss harvesting at year-end is a valuable tool for you to manage their tax liabilities, offset gains, optimize their portfolios, and potentially save a substantial amount of money by strategically realizing capital losses before the tax year concludes.
We encourage you to consult your financial advisor when pursuing such a strategy or reach out if our team can help.
- Brett Miller, CFA, CFP® | Financial Advisor
- Scott Miller | Senior VP, Investments
Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Brett Miller and Scott Miller and not necessarily those of Raymond James.
