• Tax-loss harvesting usually occurs at the end of the fiscal year.

• Tax-loss harvesting only applies to taxable investment accounts, not tax-deferred accounts like IRA and 401(k).

• Contact us at 973-276-0650 to set up a free consultation with our tax planning team!

Our CPA’s help individual and small business investors minimize their capital gains tax burden.

What is Tax-Loss Harvesting?

Tax-loss harvesting occurs when an investor sells an asset that has lost its value throughout the year, in order to offset their capital gains tax liability.  The investor then reinvests the proceeds from the lost asset into another similar asset, which preserves the value of their portfolio.  This, in turn, allows them to reduce the severity of their losses and offset their gains.

What Are the Benefits of Tax-Loss Harvesting?

The most obvious benefit to tax-loss harvesting is a capital gains tax reduction.  As long as you recognize those losses (e.g. selling the stock) rather than simply recording it on paper, you may be eligible for up to $3,000 of losses on your tax return.  It is important to keep in mind, however, that you don’t want to procrastinate on selling.  IRS rules dictate that an investor must wait at least 30 days after the sale of an asset to purchase a “substantially identical” asset and offset the gains.

Tax-loss harvesting is most often used for short-term capital gains, because they are subject to a higher federal income tax than their long-term counterparts.  However, they can be used to offset long-term capital gains as well and reduce your federal income tax burden for the fiscal year.  Therefore, by keeping track of every asset and determining which ones have lost their value and will bog down your portfolio, you can save more of your hard-earned money than you would have before.  Plus, you’ll balance your portfolio, because your losses will be reduced by obtaining a new and more valuable asset.

How We Can Help You

At Frank W. Kapitza & Associates, we help individual and small business investors in the Tri-State Area determine whether tax-loss harvesting makes sense, and then take care of the entire process so they can focus on their investments.  Please schedule a free consultation with our tax team so we can get started as soon as possible!