As the leaves change and the year winds down, it's the perfect time to reflect and refresh your tax strategy. Embrace the season's theme of transformation with tax-loss harvesting—your financial fall cleaning that helps end the year strong and start the next on firmer ground.
Why Tax-Loss Harvesting Might Work This Fall
Tax-loss harvesting is a strategy that lets you offset capital gains with investment losses. Suppose you have a $5,000 gain from Stock A and a $4,000 loss from Stock B. This loss can reduce your overall gains. If your losses exceed gains, up to $3,000 can lower your regular income, with any remaining amount carried forward to future years.
Benefits to Highlight
- Reduce Your Tax Bill: Lower your capital gains and potentially decrease regular income taxes.
- Turn Setbacks Into Tax Savings: Transform investment losses into tax benefits.
- Clear Out the Clutter: Just like a fall clean-up, align your investments with your goals.
Potential Pitfalls to Watch For
- Wash Sale Rule: Understand the 30-day repurchase restriction to avoid nullifying a loss claim.
- Limited Benefits in Some Situations: Low gains or a lower tax bracket might reduce the impact.
- Emotional Investing Risks: Avoid holding onto underperformers based on hope rather than strategy.
Remember, tax-loss harvesting isn't one-size-fits-all, but it's a potent tool when aligned with your financial goals. Take this time to review your portfolio before year-end and consider seeking professional advice. Connect with us for a personalized review and step into the new year with confidence.
