Amid the current market volatility, investors may be looking to take advantage of tax-smart strategies to offset some of their losses from this year. Fortunately, a losing investment can have a silver lining in terms of taxes. Through a strategy known as tax-loss harvesting, investors may be able to use their losses to lower their tax liability, while better positioning their portfolio going forward. The strategy generally works like this:
Let’s suppose healthcare stocks rise sharply while tech stocks drop in value. To realign their investments with assets that are performing well, investors may sell some healthcare stocks and use those funds to rebalance their portfolio, which would mean a tax gain.
This is where tax-loss harvesting can come in. The investor can use the loss of selling the tech stocks that have declined in value to offset the gain from selling the healthcare stocks, which reduces their overall tax liability.
If the losses are larger than the gains, the remaining losses can also be used to offset up to $3,000 of ordinary taxable income. Unused losses can be carried forward indefinitely.
The U.S. tax code has specific rules related to tax-loss harvesting, so be sure to consult your accountant before making any decisions. Some common pitfalls investors may encounter include:
The deadline to harvest losses from this year is December 31.
Stock market volatility continues to remain high and forward-looking returns are lower. Consider selling your underperforming stocks to allocate to private markets without the tax burden.
All investments involve risk, including the possible loss of capital. There can be no assurance that any product or strategy described herein will achieve any targets or that there will be any return of capital. Past performance is not a guarantee or reliable indicator of future results. Current performance may be lower or higher than the past performance data quoted. Any historical returns, expected or target returns are hypothetical in nature and may not reflect actual future performance. All performance and/or targets contained herein are subject to revision by Yieldstreet and are provided solely as a guide to current expectations.
Yieldstreet cannot and does not provide tax advice and this communication is for illustrative purposes only and is not intended to be – and should not be construed as – tax advice. U.S. tax code has several specific rules related to tax-loss harvesting and related matters.Please consult a tax professional for advice specific to your situation. Further, this communication should neither be construed nor intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, financial, accounting, legal, regulatory or compliance advice.
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