Tax-Loss Harvesting: What It Is and How It Works
Tax-loss harvesting is a strategy where investors sell securities at a loss to offset taxable gains, ultimately reducing their overall tax liability. This approach is particularly beneficial when it comes to managing short-term capital gains, which are taxed at higher rates than long-term gains. However, investors must navigate specific regulations, such as the wash-sale rule, which can complicate the execution of this strategy.
- The potential tax savings from tax-loss harvesting highlight the importance of strategic planning in investment management, emphasizing the need for investors to stay informed about tax implications in their decision-making processes.
- How can investors effectively balance the benefits of tax-loss harvesting with the risk of disrupting their long-term investment strategies?