When beginning in investing, there is a lot to learn, and many things I wish I knew earlier. One concept I’d like to share with you is called tax-loss harvesting, which is gaining in popularity among investors but still not widely known or understood.
Tax-loss harvesting is the practice of selling a security that has declined in value. By realizing a loss, or “harvesting”, a deduction is generated that can offset the taxes owed on other securities that gained in value. Proper tax-loss harvesting can also help lower taxes on income earned that year. All told, investors can save thousands of dollars annually through tax-loss harvesting.
When market turmoil puts stocks in the red, harvesting losses could be a silver lining for many investors.
Here are 4 tips to get started with tax-loss harvesting:
1. Consult your Financial Advisor. Ask your advisor to review your portfolio to determine which securities you can target for tax-loss harvesting.
2. Carry Over Benefits. Losses from tax-loss harvesting that cannot be applied this year, can be carried over indefinitely into future years.
3. Understand the “Wash-Sale Rule” of Tax-Loss Harvesting. The wash-sale rule bars investors from buying the same or substantially similar stock again for 30 days.
4. Year-Round Tax-Loss Harvesting. Ask your financial advisor to set up a plan in 2024 that looks for tax-loss harvesting opportunities throughout the year.
