How does tax loss harvesting work?

Can you explain how tax loss harvesting works?

Sure! Tax loss harvesting is a strategy used to offset capital gains taxes by selling investments that have lost value.

How does it actually reduce my tax bill?

When you sell a losing investment, you can use that loss to offset gains from other investments, reducing your taxable income.

Are there any risks involved with tax loss harvesting?

Yes, one risk is the wash-sale rule, which disallows the deduction if you repurchase the same security within 30 days.

Is there a limit to how much I can harvest?

There's no limit on the amount you can harvest, but you can only offset up to $3,000 of ordinary income per year.