What Is Tax Loss Harvesting and How Can It Help You Save on Taxes?
Tax loss harvesting is a valuable year-end tax planning strategy that allows investors to reduce their capital gains tax by selling investments that have declined in value. At Cool Wealth Management in Phoenix, Arizona, we help business owners and high-income professionals use tax loss harvesting to improve after-tax returns and optimize their investment portfolios. Whether you're preparing for retirement, reinvesting in your business, or simply looking for smarter ways to grow wealth, understanding this strategy is essential.
How Tax Loss Harvesting Works
When you sell an investment for a loss, that loss can be used to offset capital gains you've realized elsewhere in your portfolio. For example, if you sold one investment for a $10,000 gain and another for a $4,000 loss, you’d only be taxed on the $6,000 net gain. If your losses exceed your gains, you can use up to $3,000 per year to offset ordinary income—and carry forward the rest into future tax years.
Benefits of Tax Loss Harvesting
Reduces your taxable income: Especially helpful in high-income years or when you’ve sold appreciated assets.
Improves long-term performance: Keeps more of your money invested and working for you.
Creates tax-efficient rebalancing: Allows you to adjust your asset allocation while minimizing taxes.
Common Misconceptions
“I’ll lose money.”
Tax loss harvesting isn’t about abandoning a long-term plan. You can often reinvest in a similar—but not “substantially identical”—security to maintain market exposure.“It’s only for bad years.”
Even in up markets, certain sectors or positions may be underperforming and suitable for harvesting.
Wash Sale Rule: What You Need to Know
The IRS prohibits claiming a loss if you buy the same or a “substantially identical” security within 30 days before or after the sale. We help our clients stay compliant while reinvesting in correlated assets to maintain exposure without triggering the wash sale rule.
When to Consider Tax Loss Harvesting
Near the end of the calendar year
After a major market drop
Following a sale of appreciated assets (such as real estate or a business)
During high-income years when tax brackets are elevated
Who Benefits Most
High-income professionals or business owners with large investment portfolios
Investors anticipating a sale of a business or real estate
Retirees drawing down taxable brokerage accounts
Entrepreneurs reinvesting capital into their companies
How Cool Wealth Management Helps
We integrate tax loss harvesting into a larger financial plan that includes retirement strategies, business planning, and long-term investment growth. Our Phoenix-based team regularly monitors portfolios to identify loss-harvesting opportunities before year-end and coordinates with your tax professional to ensure every move aligns with your goals.
Final Thoughts
Tax loss harvesting isn’t just a tax trick—it’s a powerful part of strategic wealth management. Done correctly, it can significantly improve after-tax returns over time. If you want help making smarter investment and tax planning decisions, reach out to Cool Wealth Management for a consultation.
