Many investors have had success this year, which might mean that capital gains tax reporting is on it’s way to their 2021 tax returns.  If you own stocks you love and you didn’t sell this year, then you have no tax issues, so no problem for the direct buy and hold group.  However, many people own mutual funds and or have money management strategies that cause them to buy and sell securities throughout the year.  Even if the investor did not sell or take a redemption, others in their collective group did, so every investor in the group will share in the tax burden.

That said, it’s not too late to deploy a tax saving countermeasure.  It’s a limited window of opportunity though, so the next few weeks are critical.  Tax loss harvesting isn’t complex, but the majority of brokers are not proactive and don’t reach out to clients to discuss it.  Some aren’t knowledgeable enough to take advantage of it (scary if they are managing your money), some are just lazy (scary if they are managing your money) and others are discouraged by management that is afraid of additional short term liabilities.  None of these reasons should be acceptable to the public!

What to do? Call your broker and ask for an up to date long and short term capital gains report.  With those totals you can then look through your holdings and find your losers, such as cryptocurrencies and other assets that are more volatile. Consider selling enough assets at a loss to offset the gains.  It’s that easy!  That will be balanced against your gains and you’ll pay less tax.

There is, however, an opposing argument to consider.  What if the asset you sold goes back up in value after you sell it and you miss out on the money you could have made?  Smart brokers who do tax harvesting protect their clients from losing out to those swings in value by “switching horses but staying on the trail.”  For example, perhaps you had purchased some Tesla stock and it’s currently down from what you paid.  When you sell that at a loss to harvest away other tax gains, you are restricted from repurchasing Tesla for 30 days.  However, the broker might instead buy stock in the component manufacturers that Tesla buys from when they build cars.  If Tesla stock goes up, there is a good chance that the stock of Tesla’s suppliers will rise as well!  Or they might jump to a new rival of Tesla.

The point is that tax harvesting doesn’t necessarily mean losing opportunity.  If done wisely, it can even add Alpha and help with spreading out concentration of positions.  If your money managers are not initiating these conversations with you, call them and ask them why!  Be skeptical of the responses. It’s your tax bill, not theirs!