Tax loss harvesting

Tax Loss Harvesting

The sale of securities at a loss toward the end of a calendar year. One conducts tax loss harvesting to offset the losses against gains made earlier in the year. This reduces one's tax liability. In order for tax loss harvesting to work properly, one must offset short-term losses against short-term gains, and long-term losses against long-term gains. This is because of the difference between income taxes (paid on short-term gains) and capital gains taxes (paid on long-term gains).

Tax loss harvesting.

Tax loss harvesting describes the process of selling certain securities at a loss to offset the taxable gains from another investment. Many investors use this technique to reduce their tax bill.

The difference between short- and long-term capital gains plays a key role in developing a loss harvesting strategy, since you must use short-term losses to offset short-term gains and long-term losses to offset long-term gains.

At the end of the tax year, when many investors are selling off securities for tax purposes, tax loss harvesting may affect the price of certain securities and may even noticeably impact the market as a whole.

References in periodicals archive ?
Part I of this Note will provide an introductory explanation of tax loss harvesting, followed by an introductory explanation of the Wash Sale Rule in Part II.
32) Tax loss harvesting is "the process of selling securities at a loss from their original cost, .
See infra Part I for a discussion of tax loss harvesting.
For example, financial stocks are ripe for tax loss harvesting this year.
This can include tax deferral arrangements, daily tax loss harvesting or other sophisticated tax planning devices.
One of the notable strengths of the SELECT Portfolios is their ability to facilitate tax loss harvesting and other tax optimization techniques," Mr.
A core portfolio with active tax management can provide additional after-tax benefit through tax loss harvesting and careful cash flow management.
With this data automatically uploaded into TRX, advisors can use modern portfolio theory-based rebalancing to enable tax efficiency by avoiding short-term gains, quickly detecting tax loss harvesting opportunities, avoiding wash sales and choosing to minimize long-term taxation using location optimization features.
Patrick notes that unlike when investors use tax loss harvesting to book a capital loss at the end of the year, there's no wash sale rule that precludes them from buying a security right back when they sell it and register a gain.