Are you frustrated that your money isn’t going as far as it used to at the gas station or grocery store? Do you feel helpless, like there is nothing you can do about it?
While equity markets have helped offset some of that pain, it’s leaving many investors with higher-than-normal tax bills or costing more in tax dollars to access investment funds. One strategy worth considering is tax-loss harvesting. Here’s how it works: realized investment losses can offset gains taken elsewhere in the portfolio. If losses exceed gains, investors may apply a portion of what remains against ordinary income, and any leftover losses can typically be carried forward into future tax years.
We saw two great opportunities for this just in the last year – in February of 2025 the S&P 500 was at an all-time high. Due to uncertainty around tariffs, by April the S&P dropped by over 18% but fully recovered by June 2025. In March of this year, equity markets retreated approximately 10% from their high, only to create new all-time highs by mid-April. It’s easy to say after the recovery you handled it well, however, in the moment, market volatility can feel stressful. Many investors fixate on the downside and their account value, but it often creates valuable planning opportunities for investors willing to think strategically.
That said, tax-loss harvesting isn’t simply about selling whenever the market drops. The strategy needs to align with your overall investment allocation, retirement timeline, risk tolerance, and long-term financial objectives. Investors also need to stay mindful of the IRS wash-sale rule, which disallows the tax benefit if substantially identical securities are repurchased within a specified window around the sale.
Mid-year is often an ideal time to evaluate tax-loss harvesting opportunities because investors still have time to make proactive adjustments before year-end. This can be especially beneficial during periods of increased market volatility or economic uncertainty.
In addition to harvesting opportunities, a mid-year review may also help investors evaluate:
- Unrealized capital gains and losses
- Retirement income planning
- Roth conversion opportunities
- Portfolio diversification
- Charitable giving strategies
- Estimated tax exposure for year-end
Proactive planning can be particularly valuable for retirees, pre-retirees, and business owners who may face more complex tax situations or multiple income sources. Coordinating tax planning with investment management throughout the year — instead of waiting until tax season — may help improve after-tax outcomes and provide greater financial flexibility over time.
At Elevated Financial & Tax, we believe tax strategy and investment strategy should work together. While most tax preparers are viewed as saving money on taxes on April 15, we can look at your financial picture to identify potential tax savings on your taxable investment accounts 365 days a year.
The right approach depends on your individual financial situation, investment goals, and tax considerations. Before implementing any tax-related investment strategy, it is important to consult with qualified tax and financial professionals. If you are interested in a Mid-Year Financial Review or Retirement Tax Assessment, contact Elevated Financial & Tax today to discuss potential planning opportunities.
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