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Tax-loss Harvesting
How This Strategy Can Help You Reduce Your Tax Bill
TBy Gabe Jacobson
ax-loss harvesting is the selling of stocks,
ETFs, mutual funds, and other securities
at a loss with the goal of reducing taxes on other short- and long-term capital gains.
lion in your portfolio, you can still benefit from tax-loss harvesting.
Full-service financial advisors usually perform tax-loss harvesting as a part of their service and
How Does It Work?
Tax-loss harvesting is also known as tax-loss selling because it involves selling securities at a loss, generating capital losses. This seems coun- ter-intuitive. After all, most people buy securities hoping that the price per share will increase over time, allowing them to earn capital gains when they sell. These capital gains, like all other sourc- es of income, come with a tax bill attached.
Tax-loss harvesting works because capital losses are subtracted from capital gains when you file your tax return, so you pay taxes only
on the gains in excess of losses. However, capital gains and losses are grouped into two buckets based on how long the investments were held for.
Capital gains on securities sold more than one year after the purchase date are considered long- term and are taxed at lower rates. In 2020, the long-term capital gains rates range from 0% to 20%, depending on income levels; most people will fall in the 15% range.
However, if securities are sold within a year of the purchase date, the gains are considered short-term and are taxed at the same rate as wages or business income, which in 2020 range
Continued on page 22
 “Tax-loss harvesting works because capital losses are subtracted from capital gains when you file your tax return, so you pay taxes only on the gains in excess of losses.”
will coordinate with your tax advisor, but robo-advisors are beginning to offer this service for additional fees. These fees may not make sense given your situation, so consult your tax advisor if you are uncertain. Even in a rising stock market, some individual stocks or sectors may decline in price, giving an opportunity for tax-loss harvesting, which can be
     Does It Apply to Me?
Minimizing taxes is an important goal for investors, and tax-loss harvesting is a useful strategy for reducing your total tax bill. If you sell stocks, exchange-traded funds (ETFs), or mutual funds for a gain this year in a taxable, non-retire- ment, investment account, you may want to uti- lize tax loss harvesting to reduce potential taxes on any capital gains generated by those sales.
Tax-loss harvesting applies to investments of all sizes, so whether you have $5,000 or $5 mil-
done at the end of the year but may be more effective during periods of volatility throughout the year.
You may want to consult your tax advisor about tax-loss harvesting if you have a self-ser- vice brokerage account. Pay special attention to tax-loss harvesting if you bought and sold securi- ties within the same year because your capital- gains tax will be much higher than if you held the investments for over one year.
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