Farmers aren’t the only people who can benefit from a strong harvest at the end of every year. Investors, whether seasoned or new to the game, can take advantage of tax-loss harvesting as part of their end-of-year tax strategy for their taxable investment portfolio.
Tax-loss harvesting is a simple way to lower current year taxable income by offsetting high capital gains through selling poor performing investments at a loss. Proceeds can be swapped into a comparable investment, invested in more attractive opportunities, or used for current cashflow needs.
Just because a stock is sold to harvest tax losses doesn’t mean an investor has to be out of that company’s stock forever. The basis for deciding which investments to sell often lies in whether it was an ill-timed purchase rather than quality of the investment. At Girard, we believe in a long-term investing strategy, which is why many investors repurchase after the 30-day wash-sale period, thus ensuring the tax benefit. During this wash-sale period, we offer investors the option to invest their money in ETFs and mutual funds that help maintain market and industry exposure.
Tax-losses are most effective in offsetting realized gains elsewhere in the portfolio. But even if you haven’t realized significant capital gains that need to be offset, you can still generate tax losses that can be used to reduce capital gains or ordinary income in future years. Up to $3,000 in losses can be used annually and whatever is left over can be carried forward in perpetuity.
No matter the time of year, affirming that your portfolio matches your goals, time horizons and risk tolerance is always a valuable exercise. Perhaps an upcoming retirement points to realizing more losses in anticipation of lower future income. Or it might be that an expectation of higher tax rates in the future drives you to save those losses for when they’d have a bigger impact. There are countless scenarios that our team can help you navigate.
If you’re interested in learning more about how tax-loss harvesting can help you optimize your portfolio returns and potentially lower your overall tax bill, reach out to one of our advisors, we’d be happy to help and coordinate with your tax professional to determine what may be the best solution for your situation.
This article is for general information purposes only and is not intended to provide legal, tax, accounting or financial advice. The information in this article, and any opinions expressed therein, do not constitute a recommendation or an offer to buy or sell any security or financial instrument. Viewers should consult with their financial and/or legal professionals before making any financial decisions.
GirardSM is a marketing name used by Univest Financial Corporation to provide (1) investment and wealth management, fiduciary services and trust services through its subsidiary Univest Bank and Trust Co., (2) specific fiduciary and investment advisory services through Girard Advisory Services, LLC (3) securities products, insurance products and brokerage services through Girard Investment Services, LLC, a registered broker-dealer and member of FINRA and SIPC, and a licensed insurance agency, and (4) investment management and related products and services to Pennsylvania municipal entities through Girard Pension Services, LLC.