As you get ready for St Patrick’s Day you might be looking at your tax liability and wondering how next year your tax situation could be better. Tax Loss Harvesting within your investments could be beneficial for you if you hold mutual funds of stocks outside of a retirement plan. Tax Loss Harvesting involves selling your losers before the end of a tax year and replacing them. That way, you can harvest, or realize the losses on your taxes for the year.
Many brokerages offer year end reports for those that want to harvest their losses for tax reporting . Some have even gone so far as to offer automatic tax loss harvesting, selling your losers for you. While others are advising that making adjustments for tax purposes could run counter to your overall objectives and should be avoided if it detracts from what you set out to do with your portfolio.
You can preserve the long term goals of your portfolio by selling a losing asset prior to the end of the year and then repurchasing the same asset 30 days later. The 30 days is required to avoid having a wash sale. Consider the cost you need to pay to sell and repurchase compared to the tax advantage you might have. There’s more benefit if you are in a higher tax bracket and you have ordinary income to off-set.
Take a look at TurboTax’s TaxCaster to estimate your taxes for the year.