Take Advantage Of Tax-Loss Harvesting
No one likes turbulence in the markets. Though the market does recover value over time, it’s still never fun to watch your holdings lose value in the interim. However, as you weather the turbulence, here’s some good news: you may be able to count those losses against your tax bill. Losing on one side (the market) can be turned into a win on the flipside (your tax return). It's called "tax-loss harvesting," which is an unfortunate name since it’s actually a tax gain.
Tax-loss harvesting made the news in 2012 during a controversy about Mitt Romney's tax returns. Romney, a former private equity executive, didn't disclose his returns, and politics made the common tactic of loss harvesting famous. Since then, FutureAdvisor's software has made tax-loss harvesting available to investors with as little as $10,000.
File A Ton Of Paperwork, Or Just Click A Button
In order to claim a reduction in taxes owed, you must document the claims owed, and that means paperwork. Those who manage their own money often simply don’t have the time to manage this part of the process. But again, there’s good news! Automated investment advisory services such as FutureAdvisor can automatically do the necessary tracking. FutureAdvisor systematically conducts tax-loss harvesting for premium clients.
How Does It Work, And How Much Will It Save Me?
Here are the three basics of tax-loss harvesting:
1. It can't save you more money than the amount you owe the IRS. You're just plugging leaks. (Keep in mind that the people who gain the most from tax-loss harvesting are also those who can take the largest bets on the market and are able to absorb the losses.)
3. Tax-loss harvesting doesn't make the taxes you owe evaporate, it simply means that you can defer them until a later tax year. Why would you want to defer? Because the more money you have now, the more compound interest you can earn on your investments over time. Money now is worth more than money later.
How FutureAdvisor Can Help
FutureAdvisor can help you grow the money you have to invest now. After FutureAdvisor sells your money-losing investment and counts the loss against your tax bill, it reinvests your assets in another fund that maintains your portfolio's balance.
In sum: tax-loss harvesting is a financially beneficial opportunity that you can incorporate into your long-term, diversified investment strategy.