What are the best practices for tax-loss harvesting?

What are the best practices for tax-loss harvesting?

Tax-loss harvesting involves selling securities at a loss to offset capital gains. Key practices include: 1. Identify losses: Regularly review your portfolio for underperforming assets. 2. Timing: Harvest losses before year-end to maximize tax benefits. 3. Wash sale rule: Be aware of the IRS wash sale rule, which disallows a tax deduction if you repurchase the same security within 30 days. 4. Diversification: Consider reinvesting in similar but different assets to maintain your investment strategy.

How much can I offset with tax-loss harvesting?

You can offset capital gains with your losses. If your losses exceed your gains, you can use up to $3,000 of the excess loss to offset ordinary income. Any remaining losses can be carried forward to future tax years.

Are there any risks involved?

Yes, risks include the potential for missing out on market gains if you sell too early, and the wash sale rule, which can complicate your tax situation if not followed correctly. It's important to balance tax strategies with your overall investment goals.

When is the best time to do tax-loss harvesting?

The best time is typically towards the end of the tax year, as you can assess your overall gains and losses. However, it can also be beneficial to monitor your portfolio throughout the year to take advantage of market fluctuations.