​If you are unfamiliar with loss harvesting, it is simply the practice of selling holdings from your taxable (meaning, not your IRA or other tax-deferred accounts) portfolio that are currently at an unrealized LOSS so that you may then offset any taxable gains incurred throughout the year. 

One important aspect of wealth management and tax planning is the idea of loss harvesting. To be fair, the U.S. Equity Markets are up over 20% YTD and Non-U.S. Equity Markets up over 15%, you may have slim picking for losses in your portfolio! But let’s assume you have a well-diversified portfolio and SOME losses exist.
 
If you are unfamiliar with loss harvesting, it is simply the practice of selling holdings from your taxable (meaning, not your IRA or other tax-deferred accounts) portfolio that are currently at an unrealized LOSS so that you may then offset any taxable gains incurred throughout the year.
 
It is important to understand there are two different types of gains defined by the IRS:

• Long-Term Gains
• Applied to holdings purchased and held longer than 12 months
• Very favorable, will be taxed at 0%, 15% or 20% depending on your tax bracket.
• Short-Term Gains
• Applied to holdings purchased and held shorter than 12 months
• Less favorable, will be taxed at your maximum tax-rate just like income

 
If your portfolio has any realized long-term or short-term gains, you may offset those gains with losses to help minimize your tax burden. All you need to do sell a holding in your portfolio that is currently at a loss from your cost basis, or the price you paid to purchase it. The formula for offsetting gains, stipulated by the IRS is as follows:

Long-term  losses must offset  long-term  gains first
If excess losses remain, you may then offset  short-term  gains
 
Or
 
Short-term  losses must offset  short-term  gains first
If excess losses remain, you may then offset  long-term  gains

If you had enough losses to offset both types of gains and have excess remaining, you may then offset $3,000 in other income. If you have any remaining losses, you may then  carry-forward  that loss into the next tax-year to be deducted from future gains. You better hurry though, most advisory firms have deadlines for this!
 
This is a powerful tax planning tool that, if done correctly, can minimize the impact to your overall portfolio allocation and maximize your tax planning. If your investment professional is not talking to you about tax loss harvesting, then you should contact me at 512.416.8085 to discuss.

If you are not having frequent conversations with your wealth or investment advisor about market strategies, tax strategies, or opportunities, you should be. Momentum Private Wealth Management specializes in Holistic Wealth Management as well as Comprehensive Financial Planning. Feel free to reach out to Austin directly at 512.416.8085 or austin@momentumpwm.com. You can also find out more information about MPWM at:  www.momentumpwm.com .

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