Tax Loss Harvesting

Many taxpayers are not familiar with the term “tax loss harvesting,” but it’s an important term to know and understand.   

Tax loss harvesting is something that you can use to your advantage whenever you suffer an investment loss. Essentially, by making your losses evident to the IRS, you can avoid paying as much in taxes.

To take advantage of tax loss harvesting, you have to sell your assets for less than you paid for them and/or earned from them, i.e. at a loss. You then have to use the money to take on other, similar investments.

By doing this, you can lower your income tax costs by subtracting any losses from your capital gains. Just keep in mind that taxation does vary based on how long you’ve held an investment, so you have to factor that information in. If you’ve held an investment for over a year, it will be taxed at the long-term capital gains rate. Investments held for under a year, however, are subject to the normal tax rate.

Can YOU Benefit from Tax Loss Harvesting?

Basically, if you have any capital gains and losses, you can use tax loss harvesting to your advantage. However, this opportunity tends to most benefit long-term investors.

And, the best way to enjoy these benefits is to hold onto your investments for as long as possible. The longer you do, the more your savings will compound

Your best bet is to take advantage of this opportunity at the end of each year, just for simplicity’s sake, but there is no rule that says you have to wait until then.

However, to ensure you are taking advantage of this opportunity to the fullest extent possible and that you are doing everything right, just make sure that you work with a tax professional every step of the way, something all investors should be doing anyway.