Year-End Planning: Tax Lost Harvesting
As we enter the final months of 2016, now is the time to rebalance your portfolio and perform strategic tax-loss harvesting to help reduce your taxes on realized capital gains in 2016.
During the year, asset classes of many portfolios may have drifted from their target allocations as a result of market movement. In particular, emerging market equities, small cap stocks, REITs and natural resources stocks have seen big moves. Now is a good time to revisit your portfolio’s asset allocation to determine if there are asset classes that have grown significantly larger than planned and need trimming in order to return to your target allocation and diversification strategy.
Portfolio rebalancing and tax-loss harvesting work in combination. Tax-loss harvesting involves selling an investment or a portion of the investment that has lost value to realize a capital loss. This offsets any realized capital gains that you may take in rebalancing your portfolio, or in the absence of gains, up to $3,000 of ordinary income a year. Although stock market returns have been strong this year, some health care, consumer discretionary, and energy stocks may have available losses.
A Boston Private investment advisor can discuss with you the following five steps to assess your specific situation to determine how tax-loss harvesting can help you lower the taxes on your portfolio’s realized capital gains for 2016.
- Review your portfolio’s asset allocation and rebalance to ensure your current risk profile
- Assess your short-term and long-term capital gains for the year
- Estimate your capital gains tax liability
- Harvest losses and prioritize your tax savings
- Avoid the wash-sale rule
- Financial Planning