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Tax-Intelligent Money Moves: Strategic Investing and Tax Loss Harvesting

Tax-Intelligent Money Moves: Strategic Investing and Tax Loss Harvesting

February 16, 2024

When it comes to investing, it’s important to adopt a proactive wealth management approach to navigate the ever-changing financial markets. One strategy in particular, tax loss harvesting, is a powerful investment tool that, when used in conjunction with other tax-intelligent financial decisions, can help optimize returns and minimize tax liabilities. At MRK Financial Solutions, we have experience implementing tax loss harvesting on behalf of clients and are well-versed in its nuances and benefits.

What is Tax Loss Harvesting?

Simply put, tax loss harvesting involves strategically selling investments that have experienced a loss to offset capital gains, reducing overall taxable income. This process allows investors to use any losses they may have experienced to their advantage by minimizing the impact of taxes on their overall portfolio returns. With tax loss harvesting, it is best practice to enlist a financial advisor to help. At MRK Financial Solutions, we have decades of experience helping clients implement this strategy in their financial plans.

Tax Loss Harvesting 101

  1. How to identify investment losses: With your advisor, take a look at your investment portfolio to find any securities that have depreciated in value. It's important to distinguish between short-term and long-term losses, as the tax implications differ between the two.
  2. How to offset gains: By strategically selling underperforming assets, investors can neutralize the tax impact of profitable transactions, ultimately reducing their overall tax bill.
  3. What it means to carry forward losses: In cases where investment losses exceed gains, there is the option to carry forward the losses to offset future capital gains. This strategy can be particularly beneficial in optimizing taxes over the long term.

Optimizing Your Investment Strategy

While tax loss harvesting is a valuable investment tool, it’s important to note that it should be used in conjunction with a broader investment strategy. When it comes to investing, we emphasize the importance of making informed decisions that align with individual risk tolerance, financial goals, and time horizons. Here are some additional considerations for investing that we address regularly with our clients:

  1. Diversification: A well-diversified portfolio has several benefits, such as helping mitigate risk by spreading investments across different asset classes, enhancing long-term returns, and reducing the impact of market volatility.
  2. Rebalancing: Like an overall financial plan, an investment portfolio should be revisited periodically to stay aligned with an investor's financial objectives. Rebalancing might involve buying or selling assets to maintain the desired asset allocation, help capitalize on market trends, and avoid overexposure to any particular sector.
  3. Tax-efficient investing: Tax-smart investing involves making strategic decisions to minimize tax liabilities. This includes considering the tax implications of different investment vehicles and utilizing tax-advantaged accounts, such as traditional 401(k)s and IRAs, and Roth 401(k)s and IRAs, whenever possible.

By combining tax loss harvesting with thoughtful investment decisions, investors can take practical steps toward building and preserving their wealth in a tax-intelligent manner. As always, feel free to contact us so we can help bring your goals into focus with comprehensive financial planning.