Tax loss harvesting is a tax-saving investment strategy. By selling a losing position, the investor can offset gains, reducing their total tax bill. Tax loss harvesting is usually most effective against short-term gains, which are taxed at ordinary income tax rates. The strategy is best executed near the end of the year when the investor is more likely to know how much gain and loss they will have. From this, they can determine more accurately which stocks to close out at a loss, offsetting winners in the process. While short-term gains can have the most tax impact, tax loss harvesting can also be used with long-term gains.
