What should you know about Tax Loss Harvesting?

Systematic tax loss harvesting is a strategy that ShoreHaven Wealth Partners has implemented throughout our taxable investment accounts. There was no better year to implement this than 2022, as tax savings benefits hit an all-time high for clients on the 55ip Platform1. With that said, explaining what you should know about the potential benefits you may receive from implementing this strategy was essential.

First, let us explain what tax loss harvesting is. It is an investment strategy used to minimize capital gains taxes by offsetting gains with investment losses. It involves selling investments that have experienced a loss to offset gains from other investments in a portfolio. The concept is to “harvest” the losses for tax purposes, thus reducing the overall tax liability.

Then, at the end of each tax year, the total capital gains and losses incurred from all investment sales are calculated. If the losses harvested throughout the year exceed the gains, a “net capital loss” is created. This net loss can offset other income, such as wages or interest, up to an annual limit. Further, if the total capital losses exceed the limit that can be used to offset other income, the excess losses can be carried forward to future tax years until the entire loss is utilized.

Lastly, it’s important to note that tax loss harvesting can be a complex strategy with potential implications beyond just reducing taxes. With that said, it is critically important to work with your tax professional and financial planning professional to ensure that you follow tax laws correctly and understand how tax loss harvesting fits into your overall financial plan.