Believe it or not, year-end is right around the corner which means that it’s time for investors to start thinking about their tax implications. In order to help you make sense of it all, we wanted to share this article originally published last year by guest blogger Steve Thorpe. Enjoy–
Would you invest a few short hours to reduce this year’s taxes by $1,000 or more? For investors with taxable investment accounts, this is often possible by taking advantage of tax loss harvesting (TLH). This perfectly legal strategy makes lemonade from lemons, allowing Uncle Sam to share part of the pain of the losses inevitably experienced by investors at some points during their investing career
Between now and the end of the year is a good time to review your portfolio to see if any of your holdings are in the red. If so, you might be able to use those losses to help lower your 2010 tax bill.
In this article I’ll review:
- How to harvest a tax loss and under what circumstances you might want to.
- Why you need to keep track of what your investments cost in the first place.
- How to properly rebalance your portfolio after a sale, without triggering undesirable tax consequences.
- The way investments look from a tax perspective: short-term losses can be more valuable than long-term losses. But hold onto gains at least a year and a day.