Tax-loss harvesting is a great way to reduce current taxable income. This can be effective to lower the tax bracket or tax bill for the current year. However, keep in mind that unless you take the tax savings and reinvest along with the rest of the capital in the portfolio, you haven't gained any value.
Simply deferring the tax bill will not leave you any better off, unless you just want to spend the tax savings on fun stuff. You need to invest the tax savings to get the total benefit of tax loss harvesting. As you can read in the article below, it's essentially an interest free loan from the government. But, you will still pay taxes on the gain in the future! With preferential long-tern cap gains rates, this can reduce but not eliminate the tax bill.
Tax alpha is not as large as many 'tax-aware advisors' will proclaim. Basic analysis shows that the value add is much less than 1%, closer to 33bps/0.33%. This can add up in the long term, but be careful of advisors selling you on tax managed strategies that are much higher than the actual economic value added by higher turnover strategies.
Submitted December 13, 2020 at 10:50PM by thaw-db https://ift.tt/2ILZI0d
