Strategic Tax-Loss Harvesting

Tax loss harvesting is the tactic of using losses to offset profits. While investors and financial professionals may be aware of tax loss harvesting, optimal use is often accompanied by a holistic financial plan.

While investment losses are often used to reduce capital gains taxes, investors who don’t report capital gains can benefit from tax loss harvesting, since investment losses can also be used to offset ordinary income for tax purposes, up to a limit.

Annex Wealth Management uses the word “strategic” to describe tax-loss harvesting, since tax-loss harvesting isn’t always the best tactic for everyone. Cost-basis calculations and wash sale rules must be considered in order to effectively execute strategic tax-loss harvesting.

In some cases, it may be beneficial to skip tax-loss harvesting if you can’t find an adequate “equivalent replacement.”