Benefits of tax loss harvesting?

Tax loss harvesting offers several benefits that can enhance financial management and tax efficiency:

1. Offsetting Capital Gains with Losses: By selling assets at a loss, you can offset capital gains, reducing your overall tax liability. This can be particularly useful if you have high capital gains in a given year 1.

2. Deduction Against Ordinary Income: Up to $3,000 of capital losses can be deducted against ordinary income annually. This deduction lowers your taxable income, potentially dropping you into a lower tax bracket 1.

3. Carrying Over Excess Losses: If your capital losses exceed the limit of $3,000 in a year, the excess can be carried forward to subsequent years. This continuation allows for ongoing tax relief until the losses are fully utilized 2.

4. Portfolio Rebalancing: Tax loss harvesting can serve as a strategic opportunity for portfolio rebalancing. By realizing losses, you might consider reallocating or diversifying your investments without incurring high tax costs 3.

   Tax Loss Harvesting

   Sean Mullaney

   Jonathan Mendosa

   Sean and Jonathan discuss the strategy of tax loss harvesting, highlighting the benefits of offsetting capital gains with losses to minimize tax liabilities. They delve into the nuances of reallocating portfolios and the advantages of resetting basis for tax efficiency.

   

   ChooseFI

   205 | Tax Loss Harvesting with Sean Mullaney

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5. Resetting Cost Basis: It allows for the resetting of the cost basis of investments. Selling and repurchasing shares can adjust the cost basis upwards, potentially reducing future capital gains taxes 2.

These strategies can effectively manage tax payments and enhance long-term financial planning by maximizing investment returns relative to tax liabilities.