Tax loss harvesting

Also found in: Acronyms.

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 ?
The intersection of academic research and technology has turned tax loss harvesting into a year-round activity for some clients, popularized first for larger investors by a few innovative asset managers and private banks, and more recently for the mass market by online advice providers.
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.
Tax loss harvesting is usually a savvy year-end strategy for investors.
Particularly when robo-advisors these days can rebalance automatically, advisors will be under pressure to have more capabilities here, such as tax loss harvesting and the ability to rebalance more frequently.
As always, we urge you to consult your tax advisor for specific information about tax loss harvesting and the wash sale rule.
Clients can access automatic tax loss harvesting on accounts with $50,000 or more.
Indexed-based SMAs also provide ongoing tax management advantages, such as tax loss harvesting using a short-term capital loss to offset capital gains.
TD Ameritrade expects to add more features through the coming months, including tax loss harvesting.