Do you want to inform your clients about how you are saving them money? I usually add content to the quarterly newsletter we send out. Here is a recent article about tax loss harvesting. Please feel free to use this as is or edit.
We know our clients: You don’t like losing money or paying taxes! While we can’t control periodic market declines, we can mitigate them through diversification and rebalancing. And, although we can’t guarantee that you’ll never pay taxes, we can take advantage of the periodic market declines with tax loss harvesting (TLH).
TLH recognizes losses by selling loss positions solely for tax purposes. TLH produces capital losses that offset taxable gains from rebalancing and, if not used up in a year, can be carried forward indefinitely to offset future gains.
The IRS disallows tax losses if we sell, then buy back the same position within 30 days. So, we either need to stay out of the market during that time - which is dangerous if the market goes up – or purchase something similar to replace what we sold. We do the latter, so your investment strategy is maintained and you get a great tax deduction. It’s the best of both worlds!
What goes into TLH? First, we monitor the market daily to see if temporary dips provide any opportunities. We take advantage of these temporary losses only if the tax benefit is material, so we don’t incur transaction costs for a small amount of savings. And we only do this if we’ve identified a replacement fund that we like as well as the one we’re selling.
Although we can recognize losses for tax purposes, it has no effect on your portfolio’s performance. Because we maintain your investment parameters, we can often show a loss on your tax return while producing good positive returns in the same year.
TLH is just one of the many ways we add value with tax-efficient portfolio management “behind the scenes.” If you have any questions, please let us know!