Reduce Tax.jpgAs a part of your overall Tax plan, it’s important to look at all possible areas to save your hard-earned dollars.  One thing we can do for clients to reduce their tax burden is Tax Loss Harvesting.  Very few advisors are talking to their clients about this, and if you currently own mutual funds, you may not be able to do this as efficiently.

Let’s say that you have realized a decent amount of gains in a given year and you want to reduce them to reduce the amount of capital gains tax you will have to pay. Tax Loss Harvesting is when, at the end of the year, you sell all, or a portion of, your losing equities, then buy them back thirty-one days later if you want to. By realizing, or “harvesting” a loss, you are able to offset taxes on both gains and income thereby reducing your overall tax burden.

There are some downsides to this scenario. For example, you must wait 31 days to buy the stocks back. This is the wash-sale rule imposed by the IRS (IRS Publication 550).  This prevents investors from repurchasing the security within 30 days before or after the sale. If you left it in cash, you may miss some of the market upside (or avoid some downside). In most cases, while waiting the 30 day period, you would replace that stock with a corresponding security, and there is always the chance that the new stock could increase your gains should that stock rise in the 30 day period.

Additionally, there are some who think that long-term tax harvesting could inadvertently drive up your future tax rate. The bottom line is that you must consider your whole tax picture. You must consult a qualified financial advisoror tax accountant to discuss your particular situation to see if Tax Loss Harvesting is right for you. At SHP financial, this is something we review at year-end with our clients to determine if this strategy makes sense.


We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

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