Tax Loss Harvesting
Nobody likes losses. However, in taxable accounts, you may be able to take advantage of them through tax loss harvesting. When you sell a security that has a loss, you can use that loss to offset the gain from selling another security. Through this tax loss harvesting action, you can reduce or eliminate the tax that you would have owed on the gain. If you don't have gains to offset, you can use up to $3,000 of the loss to offset ordinary income. The amount you don't use, can be rolled forward to use in a future year.
When harvesting a tax loss, you may sell a security that you still want to hold long term. The security can be bought back 30 days after it has been sold. You may not want to be uninvested during that period in case the market moves higher. One solution is to buy another security that is similar to the one being sold that would likewise participate in any bounce. Another solution if cash were available is to double up on the security by purchasing shares and after 30 days sell the original shares with the bigger loss. Losses can be harvested in any type of investment and at any time of the year—not just year-end.