Tax Harvesting refers to a strategy used by investors to minimize tax liabilities by selling securities at a loss to offset capital gains from other investments.
This technique involves identifying underperforming investments in a portfolio and selling them, which generates a capital loss. These losses can then be used to offset capital gains realized from selling other profitable investments, thereby reducing the overall tax burden.
For example, if an investor realized a $10,000 capital gain from the sale of stock A but also sold stock B at a $4,000 loss, the investor can offset the gain by the loss, resulting in a net capital gain of $6,000. Tax harvesting can be particularly beneficial in taxable accounts and is often executed towards the end of the fiscal year for optimal tax planning.
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