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

(17.) See infra Part I for a discussion of tax loss harvesting.

(31.) Saletta, supra note 12 (referring to tax loss harvesting as "tax loss selling"); see also Richard Shaw, Tax Loss Harvesting & the Wash Sale' Rule, SEEKING ALPHA, Aug.

Accordingly, Congress, the Treasury, and the IRS must be left with the responsibility to balance the policy objectives discussed in this Note with administrative concerns, in order to determine exactly how similar the holdings of the ETFs must be for a taxpayer to maintain the same economic position following a tax loss harvesting transaction.

New twists on an old plot: investors look to avoid the wash sale rule by harvesting tax losses with exchange-traded funds

Although tax loss harvesting is tax-efficient, you shouldn't let these moves disrupt your investment strategy.

Year-end tax planning for investors

All content on this website, including dictionary, thesaurus, literature, geography, and other reference data is for informational purposes only. This information should not be considered complete, up to date, and is not intended to be used in place of a visit, consultation, or advice of a legal, medical, or any other professional.