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Is Year-End the Best Time to Look for Tax-Loss Harvesting Opportunities? No  Thumbnail

Is Year-End the Best Time to Look for Tax-Loss Harvesting Opportunities? No

Harvesting losses to offset gains is a common strategy used to minimize the overall impact of capital gains taxes. When done correctly, the IRS allows investors to match realized losses against realized gains, and to the extent that losses exceed gains in a given tax year, also offset up to $3,000 of income.

If you’re just getting around to it at the end of the year, you’ve probably missed some opportunities.   

If you are an investor and only tax loss-harvest at year-end, you miss the opportunity to loss-harvest mid-year dips. This matters. A lot. Recent studies estimate that year-round tax loss harvesting is significantly more effective than year-end loss harvesting, potentially as much as 2.7x more.1,2 

To understand why year-round loss harvesting is so much better, look at the following graph of the S&P 500 from 2022 through November 30th. As you can see, there was a small dip in March and big dips in June and October.  

If you are only getting around to loss harvesting in December, it’s too late: you missed two, possibly three, previous loss harvesting opportunities. 

2020 was a particularly glaring example. Below is a graph of the S&P 500 during 2020. As you can see, if you missed the March dip, you lost out completely. That’s a big miss. An investor who actively loss harvested in March 2020 would have been able to generate realized losses that, if used to offset future gain, lowered their tax bill by an average of 3.5% of portfolio value.1

For many investors, year-round loss harvesting is the best way to actively tax manage a portfolio. However, most investors simply don’t have the time or ability to do anything else other than loss harvest at year-end. That's where we can help.  

Our Personal Index Portfolios combine the best features of low-cost indexing, year-round active tax management, and the inclusion of your environmental, social, and faith-based views.  We also provide each client with a report estimating the amount of taxes saved. Tax loss harvesting year-round while maintaining your personal investment objectives has never been easier.  

If you would like to discuss how we can potentially improve your after-tax returns with year-round tax loss harvesting, schedule a meeting with us here. 

1. https://www.smartleaf.com/our-thinking/smartleaf-blog/year-round-vs-year-end-loss-harvesting

2. https://advisors.vanguard.com/insights/article/taxlossharvestingmorethanayearendtaxstrategy

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.