What is tax-loss harvesting?

What is tax-loss harvesting?

• A. A method of increasing taxable gains
• B. A strategy for selling securities at a profit
• C. A tactic of selling securities at a loss to offset capital gains
• D. A strategy for delaying tax payments

Answer: (C)

Tax-loss harvesting is a strategy utilized by investors to minimize their tax liability on capital gains. This approach involves selling securities that have incurred a loss in order to offset gains that have been realized on other investments. By doing so, investors can effectively lower their taxable income, as the losses can be used to reduce the amount of capital gains that are subject to taxation. This not only helps in managing the tax burden in the current year but can also be beneficial for future tax planning. The effectiveness of tax-loss harvesting is particularly noticeable in volatile markets where gains and losses can easily occur within a trading portfolio. By carefully selecting which positions to sell at a loss, investors can strategically enhance their tax efficiency without significantly altering their overall investment strategy. This makes it a valuable technique for optimizing after-tax returns on investments.

Tax-loss harvesting is a strategy utilized by investors to minimize their tax liability on capital gains. This approach involves selling securities that have incurred a loss in order to offset gains that have been realized on other investments. By doing so, investors can effectively lower their taxable income, as the losses can be used to reduce the amount of capital gains that are subject to taxation. This not only helps in managing the tax burden in the current year but can also be beneficial for future tax planning.

The effectiveness of tax-loss harvesting is particularly noticeable in volatile markets where gains and losses can easily occur within a trading portfolio. By carefully selecting which positions to sell at a loss, investors can strategically enhance their tax efficiency without significantly altering their overall investment strategy. This makes it a valuable technique for optimizing after-tax returns on investments.