This video covers 5 things to consider when tax-loss harvesting. Tax-loss harvesting is especially helpful in taxable brokerage accounts.
1. Investment losses can help you reduce taxes by offsetting gains or income.
2. Even if you don't currently have any gains, there are benefits to harvesting losses now, since they can be used to offset income or future gains.
3. If you have more capital losses than gains, you can use up to $3,000 a year to offset ordinary income, and carry over the rest to future years.
Losing money is not anyone's idea of a long-term investment plan, but a well-diversified portfolio will usually contain some investments that have indeed lost value, at least over the short-term. Sometimes an investment that has lost value can still do some good—or at least, not be quite so bad. You can sell stocks, bonds, mutual funds, or other investments that have lost value, to reduce federal taxes on capital gains from winning investments—or you could get a federal tax deduction. It's called tax-loss harvesting.
The key to an effective tax-loss harvesting strategy is to evaluate what you own and why you own it, identify investments that have lost value, and then consider the sale of some portion of those holdings to offset realized gains, expected future gains, or even income. And do this while being careful not to stray from your target investment mix and diversification strategy. Because evaluating and managing the tax consequences of your investment decisions can be tricky, it's always a good idea to consult a tax professional.
Here are 5 things to keep in mind as you see how tax-loss harvesting might help you lower your tax bill.
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