What is Tax Loss Harvesting?

What is Tax Loss Harvesting?

Tax loss harvesting is a strategy employed by investors to offset capital gains and potentially decrease tax obligations. This technique entails selling off investments that have incurred losses to counterbalance the gains made from other investments. Through this strategic approach investors can generate capital losses that effectively offset their capital gains, thus reducing their taxable income.

To effectively implement tax loss harvesting, here are three tips to keep in mind:

  • Monitor your portfolio regularly

    It is important to regularly review your investments to identify any positions that have experienced losses. By staying vigilant and proactive, you can maximize the opportunities for tax loss harvesting.

  • Be mindful of wash sale rules

    The Internal Revenue Service (IRS) has specific rules regarding wash sales, which occur when an investor sells a security at a loss and then repurchases the same or a substantially identical security within a certain period. To avoid the disallowance of the loss, it is crucial to be aware of these rules and carefully time your transactions.

  • Consider working with an experienced professional

    Tax laws and regulations can be complex, and tax loss harvesting involves careful planning and execution. Seeking guidance from a qualified tax professional can help ensure that you navigate the process effectively and make informed decisions that align with your financial goals.

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Tax loss harvesting is an effective strategy to optimize investment portfolios and reduce tax obligations. By partnering with WPWealth as your financial advisor, we can help you identify suitable investment opportunities and ensure compliance with tax regulations to help you achieve your long-term financial goals.