As the weather cools and seasons change from summer to fall, farmers are looking to harvest. Much like the farmer, we at Perspective Financial are turning our thoughts to harvesting – from a financial perspective. Tax loss harvesting, capital gains distributions and required minimum distributions (RMDs) from IRAs are areas of tax planning we review and monitor for our clients throughout the year. During the fourth quarter, we pay particular attention to how these aspects of their portfolios may impact their individual tax situations.
The practice of selling a security that has experienced a loss is called tax loss harvesting.
By realizing (or “harvesting”) a loss, investors are able to offset taxes on both gains and income. The sold security is replaced, at lower cost by a similar one, while maintaining the investor’s asset allocation. We were able to do some tax loss harvesting earlier this year when the markets were very volatile and weak, where it was appropriate for clients with taxable accounts. We continue to look for such opportunities as the year comes to a close.