What is Tax-Loss Harvesting? | Mission Wealth

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hi i’m karen osborne chief investment officer at mission wealth and in today’s video we’re going to be talking about tax loss harvesting a technique that mission wealth employs which may provide a silver lining in a down market at mission wealth we proactively tax loss harvest across our clients taxable accounts where suitable and when opportunities present themselves tax loss harvesting can provide significant tax savings and allows us to enhance the after-tax returns for our clients so what is tax loss harvesting our approach to tax loss harvesting is a method applied to taxable accounts such as an individual account or a trust whereby we sell an investment that is trading at a loss and immediately use those proceeds to purchase a very similar investment position so that the overall portfolio allocation remains a little change importantly you cannot buy the position back within 30 days or you will trigger what is called a wash sale violation and the loss will be disallowed let’s say we bought an investment we’ll call it investment one for a hundred dollars per share a month ago let’s also assume the market sold off

over the course of the month and that investment is now worth 80 per share now there just so happens to be another investment let’s call it investment two which we don’t currently own but is very similar to investment one and it too has fallen in value from a hundred dollars to eighty dollars per share because the two investments have very similar profiles maybe they are both small cap investments as an example we could tax loss harvest investment one by selling it realizing a 20 loss per share and using the 80 proceeds to immediately buy investment 2. as a result of this transaction we maintain our portfolio allocation again say to small cap stocks so if the market rebounds we will fully participate at the same time we have switched from one investment to another and realized a loss of twenty dollars per share that loss may help enhance after tax returns losses can be used in a variety of ways these losses may help offset gains that have already been triggered elsewhere in the portfolio losses may help offset current income they may provide more flexibility to trigger future gains within the portfolio whether as a result

of regular rebalancing or to fund future withdrawals losses may also enable us to trim concentrated stock exposures that have large unrealized gains helping offset those gains and allowing for a more diversified portfolio let’s look at a concrete example in this example a 25 000 loss from investment b can be applied to first offset 20 dollars of gains that have been triggered from a sale of investment a next three thousand dollars of the loss can be used to offset ordinary income while the remaining two thousand dollars of losses can be saved to help offset future gains or income in this example the total tax savings exceed eight thousand dollars we proactively tax us harvest across our clients taxable accounts we’re suitable and when opportunities present themselves tax loss harvesting can provide significant tax savings and benefits for our clients

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