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Tax Loss Harvesting
While most investors fear stock market volatility, there are ways to make it work to your advantage. One of the best ways is to "harvest" tax losses – to sell holdings at a loss to establish a tax loss, then buy back a similar, but not substantially identical holding. Through tax-loss harvesting, investors can establish tax losses, yet maintain their asset allocation (such as selling Coca-Cola at a loss and buying Pepsi). If executed properly, tax-loss harvesting can increase your after-tax portfolio returns.
Once you take a tax loss, however, you cannot purchase "substantially identical" stock or securities within 30 days before or after the sale. If you do, the tax loss will be disallowed because of the "wash sale" rules, and the disallowed loss will be added to the cost of the new stock or securities. Given the complexity of the wash sale rules, it is good practice to contact your tax advisor before harvesting tax losses.
At the Bensman Group, we seek opportunities to take advantage of stock market volatility to establish tax losses for our clients and increase their after-tax returns. Most recently, we harvested tax losses for several clients during the week of January 21-25 to take advantage of the stock market's sharp decline, whereas some firms only harvest tax losses at year-end. If we can assist you in your portfolio management or tax-loss harvesting, please contact our head of Asset Management, Larry Stein, at 847-572-0825.