If You Want To Take Advantage Of Tax-Loss Harvesting This Year, You Need To Act Right Away (UPDATED)

Editor's Note: This article has been updated to correct the tax-loss selling deadline for this year, which is Dec. 29, 2023, not Dec. 27 as previously reported by other sources.

There are only a few trading days left in 2023 and there's even less time remaining for those who want to take advantage of tax-loss harvesting. If you're looking to maximize gains for the year, here's what you need to know now.

What To Know: If you only invest using tax-deferred investing accounts, then you're already doing all you can do to minimize future tax bills, but those who use taxable investing accounts can pull some levers at the end of the year to improve returns by about 1% annually, according to research data reported by Forbes. 

Tax-loss harvesting is an investing strategy that involves selling securities at a loss in order to use those losses to minimize capital gains for the year. The losses can be used to offset some of your investing gains or as a write-off of up to $3,000 per year against ordinary income. 

Check This Out: Cathie Wood Predicts Deflation In 2024, More AI And Tech Optimism — And Rate Cuts

Why It Matters: Any tax loss selling that you want to use against your 2023 tax bill must be completed before the end of the calendar year, and this year's deadline is set for Dec. 29. 

In order to take advantage of tax-loss harvesting for 2023, investors need to close out of their positions for a loss on Friday or earlier.

If you are selling solely for tax purposes, you should also be familiar with the "wash-sale" rule, which prevents investors from selling securities that were purchased in the last 30 days, as well as from repurchasing the same position within 30 days of a sale. 

If you want to exit a position for tax purposes, but still want to maintain exposure, you will either have to wait a month to buy back the shares or buy a different security in the same space — the latter is a common approach used in the tax-loss harvesting strategy.

For example, if you were to sell Lowe's Companies Inc LOW stock for a loss but still wanted exposure to home improvement heading into 2024, you might consider buying Home Depot Inc HD shares with the proceeds. Similarly, if you were to sell shares of AT&T Inc T, you might consider buying shares of Verizon Communications Inc VZ or another comparable telecom name.

Read Next: A Quick Guide To Tax-Loss Harvesting

Photo: Robert Owen-Wahl from Pixabay.