Tax harvesting is a year-end portfolio management technique we use to save our clients money.
Client accounts are reviewed for recognized gains and losses, every year starting in October. In the first 9 months of the year, accounts may be rebalanced, create monthly distributions, or make funds available for a one-time cash flow. A tax event occurs when a trade is placed in the portfolio, and a capital gain or loss is recognized. The goal of tax harvesting is to neutralize (zero out) gains and capital losses before December 31.
With a diversified portfolio, it’s possible to make money and reduce tax liabilities at the same time. While some sectors of the economy are blazing ahead, others may be retreating. The differences are reflected in the investments' current prices. By selling out-of-favor holdings and buying them back 31+ days later, we lock in a tax-reducing benefit. The IRS wash sale rule makes this possible. Sometimes, we sell to lock in a $3,000 gain and neutralize against the previous year's loss carryforwards. It’s important to check with our tax preparers each autumn!
Be mindful of holiday charitable giving. Uncle Sam will help you share more with your favorite 501(c)3 charity by gifting your highly appreciated stock shares in lieu of selling the position to give cash.
