Taxes may be unavoidable, but with the right strategy, they don’t have to be unavoidable today, if you’re following a tax-loss harvesting plan. This wealth management strategy allows investors to sell certain securities at a loss in order to offset gains elsewhere in their portfolio. If done properly, it can reduce your taxable income, free up capital for reinvestment, and keep your long-term goals on track. But like most financial strategies, it’s not one-size-fits-all—and it’s definitely not DIY.
If you’re based in Springfield and exploring ways to keep more of what you earn, here’s what you need to know about this process.
How Tax-Loss Harvesting Works
When you sell an investment at a loss, you can use that loss to offset capital gains from other investments. If your losses exceed your gains for the year, you can apply up to $3,000 to reduce your ordinary income. Anything beyond that can be carried forward into future tax years.
That’s the basic idea—but the execution requires more care than you might expect. One key limitation is the wash-sale rule, which prohibits you from repurchasing the same or a “substantially identical” security within 30 days before or after the sale. Doing so would disqualify the loss for tax purposes.
To stay in the market without breaking the rules, many investors reinvest proceeds into a similar (but not identical) security that still reflects their overall strategy.
When This Strategy Might Make Sense
Tax-loss harvesting can be a powerful tool for wealth management but only in the right circumstances. It may be worth discussing with your advisor if:
- You’ve realized significant capital gains this year (from selling investments, real estate, or even a business).
- You’re in a high tax bracket, where each dollar of offset offers more value.
- Your assets are held in taxable brokerage accounts—not retirement accounts like IRAs or 401(k)s.
- You’re rebalancing your portfolio and holding onto underperformers no longer makes sense.
- You’re planning to reinvest the savings for long-term growth.
Some Springfield investors use this strategy toward the end of the calendar year, especially when looking to trim tax liability ahead of April.
When a Tax-Loss Harvesting Plan Might Not Be Ideal
In other cases, the math simply doesn’t work in your favor. Even well-intentioned trades can backfire without proper planning. You might want to pause before harvesting losses if:
- You’re in a lower tax bracket, where offsets won’t provide much benefit.
- You expect to be in a higher bracket in future years, and deferring gains could be more costly.
- Trading costs (if applicable) cancel out the benefit of the tax savings.
- You don’t have a suitable alternative investment, and the 30-day wash-sale period could leave you exposed.
- You’re at risk of unintentionally violating the wash-sale rule.
A Strategy, Not a Shortcut
Tax-loss harvesting should support your investment goals, not drive them. For Springfield investors nearing retirement, it’s one of many tools that can help maximize after-tax returns, but only if it fits within your broader financial plan.
At LaTour Asset Management of Springfield, our team helps clients make informed, confident decisions about how and when to use strategies like tax-loss harvesting. If you’re curious whether this approach could help you reduce your tax burden and stay on track, we’re here to talk through the possibilities. Reach out at (877) 888-5724 to start the conversation today.
