How to Manage a Taxable Portfolio to Lower Taxes

What Is Tax Loss Harvesting?

In the world of finance, navigating taxes efficiently can significantly enhance your wealth management strategy. One such technique is Tax Loss Harvesting (TLH), a method that, when used wisely, can turn market downturns into tax-saving opportunities. But what exactly is Tax Loss Harvesting, and how does it work?

At its core, TLH involves the strategic sale of securities at a loss to offset capital gains taxes owed on other investments. In any taxable account, when you sell an investment for more than you paid for it, the profit you make is considered a realized capital gain, which is taxable. Conversely, selling an investment for less than its purchase price results in a realized capital loss. TLH leverages these losses to lower your overall tax liability by offsetting realized capital gains and, in some cases, reducing taxable income.

How Wooster Corthell Implements Tax Loss Harvesting

At Wooster Corthell, we integrate Tax Loss Harvesting into our comprehensive wealth management approach, especially during periods of market volatility. Here’s how we make it work for our clients:

1. Proactive Account Review: We continuously monitor client portfolios to identify opportunities for TLH. This involves pinpointing investments that have decreased in value and assessing whether selling them could be advantageous from a tax perspective.

2. Strategic Selling: When a suitable candidate for TLH is identified, we consider the timing and amount of the sale to maximize tax benefits. Our goal is to realize enough losses to offset any capital gains taxes during the year or create losses that can be carried over in future years.

3. Reinvestment Strategy: Selling assets at a loss doesn't mean exiting the market. We strategically reinvest the proceeds into similar (but not identical, to avoid the "wash sale" rule) securities to maintain the portfolio's overall investment strategy and potential for recovery.

4. Carryover Flexibility: Not all realized losses need to be used in the current tax year. We plan for the future by carrying over unused losses to offset potential gains in upcoming years, providing a cushion against future tax liabilities.

The Benefits of Tax Loss Harvesting

Tax Loss Harvesting offers several potential advantages, making it a pivotal component of an effective tax strategy:

• Reduced Tax Liability: By offsetting capital gains with losses, TLH directly reduces your tax bill, leaving more of your investment returns in your pocket.

• Portfolio Rebalancing: TLH provides an opportunity to rebalance your portfolio in alignment with your investment goals, without the added burden of capital gains taxes.

• Future Tax Planning: The ability to carry over losses to future years offers strategic flexibility, allowing for proactive tax planning.

Beyond the Strategy

While Tax Loss Harvesting is a powerful tool, it's most effective when integrated into a broader financial plan tailored to your unique situation. At Wooster Corthell our goal is to create personalized strategies that align with your financial goals and objectives.

To explore how Tax Loss Harvesting can benefit your portfolio, we invite you to book a meeting with our team. For more insights and updates, follow us on LinkedIn.

Tax Loss Harvesting is just one of many strategies we employ to navigate the complexities of wealth management. By understanding and applying these techniques, we strive to optimize your financial health and secure your future prosperity.

Disclosures: Some Images and text were generated in part with GPT-4, OpenAI’s large-scale language-generation model. Upon generating Wooster Corthell reviewed, edited, and revised the language to their own liking and takes ultimate responsibility for the content of this publication.

The information contained herein is for informational purposes only and is not personalized investment advice. Any tax considerations should be discussed with your tax professional.