A Guide to Tax-Loss Harvesting This Fall

As the leaves change and the year winds down, now is the right time to give your tax strategy a seasonal refresh. One option worth considering is tax-loss harvesting. It’s a simple but effective way to reduce your tax bill and tidy up your portfolio before the year ends. Think of it as a little financial fall cleaning that can help you start the new year on stronger footing.

Why Tax-Loss Harvesting Might Work for You This Fall

Tax-loss harvesting lets you turn market losses into tax wins. When you sell investments that have dropped in value, you can offset gains from others you've sold at a profit. This helps shrink your tax bill and make the most of a rocky market.

Here’s a quick example: Suppose you made $5,000 from selling Stock A earlier this year. But Stock B is now worth $4,000 less than what you paid for it. If you sell Stock B before the year ends, you can use that $4,000 loss to reduce your taxable gain from Stock A, lowering it to just $1,000.

When your losses are greater than your gains, you can knock up to $3,000 off your regular income this year and even carry any leftover losses into future years to keep saving.

Benefits of Tax-Loss Harvesting

  • Reduce Your Tax Bill - By using investment losses to cancel out gains, you may end up owing less in capital gains taxes and even reduce your regular income taxes.
  • Turn Setbacks Into Tax Savings - Losing money on an investment never feels good. Tax-loss harvesting lets you put those losses to work in a productive way.
  • Clear Out the Clutter - Think of this as a fall clean-up for your portfolio. Selling off underperforming investments can help you refocus on what's truly aligned with your goals.

Potential Pitfalls of Tax-Loss Harvesting

  • The Wash Sale Rule Can Trip You Up - When you sell an investment at a loss but then buy the same (or a very similar) one within 30 days, you have a wash sale. When that happens, the IRS won't let you claim the loss.
  • It Doesn’t Always Provide a Big Win - If you don't have much in capital gains this year, or you're in a lower tax bracket, the tax benefit of harvesting losses might be minimal.
  • Emotional Investing Risks - Sometimes, it's hard to let go of an asset you believe will bounce back. Keep in mind that smart investing is about long-term planning, not short-term emotions.

There’s value in your losses! However, tax-loss harvesting isn't a one-size-fits-all strategy. When it fits your financial goals, it can make a real difference in your year-end tax picture.

If you're wondering whether it could work for you or want a second look at your portfolio before the year wraps up, let's connect. Our team at Standard Equity is always happy to help.