Here’s how I understand tax loss harvesting: Let’s say I have a stock that made $20,000 and another that lost $1,000. Now I only have to pay taxes on $19,000. If my tax rate is 20%, I save $200. But I’ve still lost $800 overall.
Am I missing something? My advisor says tax losses are a good thing.
If the losing stock isn’t going to recover, selling it and taking the loss can make sense. If you still like the stock, you can buy it again after 30 days to avoid the wash sale rule.
It sounds like the idea is to sell the stock if you don’t believe in it anymore. Or you might think the price will drop further and you can buy it back later after the wash sale rule period is over.
You wouldn’t spend $1,000 just to save $200—that doesn’t make sense. But if you’ve already got a losing stock, you can use that loss to offset taxes on other gains or income. It’s not about intentionally losing money but making the best out of a bad situation.
You’re thinking about this backwards.
The wrong way to see it: You sell both a gain stock and a loss stock, and now you’re paying more tax than if you hadn’t sold anything.
The right way: Throughout the year, you sell stocks for various reasons (to raise cash, rebalance, etc.), creating some gains and losses. By the end of the year, you look at the overall gains and losses and plan. If you had a $20,000 gain earlier, selling a $1,000 loss now saves you $200 on taxes. If you end up with an overall loss, you can offset up to $3,000 of income and carry the rest to future years. The key is adjusting taxes on trades you already made, not intentionally taking losses.
Tax losses are losses, period. A lot of advisors and robo-advisors don’t even match the returns of simple index funds like VOO. Just buy VOO and tell your advisor their services aren’t needed anymore.
No, you’re not missing anything. Tax savings only reduce your tax bill, they don’t bring back the money you lost. When businesses write off expenses, it’s the same thing—they don’t get the full amount back, just the tax savings.
If you want to stay in the stock, you can sell it for the loss and rebuy it after 30 days. If the price doesn’t move much, you’ve locked in the tax savings while keeping your shares.
Tax losses are only helpful if the stock isn’t likely to recover. It’s better to take a $1,000 loss now than to hold on and risk losing $5,000 later. Some advisors suggest getting out of bad investments during a good year, as it improves long-term portfolio performance. This year might be a good time to clean out the poor performers in your portfolio.
You’re not dumb. The real confusion comes when people think tax deductions save 100% of the amount instead of just the tax rate. Like those who think giving to charity eliminates all their taxes—it doesn’t work that way.
The end of the year is a popular time to look at portfolios and harvest losses. It’s a chance to clean up underperforming investments and reduce taxable gains. This can be helpful if you’re expecting a higher income or big capital gains this year.
When people say tax losses are good, they mean they can help reduce your taxes on other gains. But yeah, losing money is never good—it’s just a way to soften the blow.
Nobody plans to have losing stocks—it just happens. If you’re stuck with one, you might as well use the loss to your advantage.
Storm said:
Nobody plans to have losing stocks—it just happens. If you’re stuck with one, you might as well use the loss to your advantage.
Honestly, you’d be better off sticking to index funds like VOO instead of trying to pick individual stocks.
Would you rather lose $1,000 or $800? Tax loss harvesting lets you lose less. It’s not about making money, but if a stock goes bad, you might as well save on taxes.
Think of it like this: A losing stock becomes a ‘tax asset’ when sold. You’re converting a paper loss into something that can reduce your taxes, and it might also free up cash for better investments.
Saying tax losses are good is like saying a lower-paying job is good because you pay less in taxes. It’s not great, but it’s something.
If one stock’s up $20,000 and another’s down $1,000, selling both in the same year means you’re keeping $15,200 after taxes instead of losing $1,000 outright. The loss isn’t great, but pairing it with a gain helps.