As investment advisors, we are constantly looking for ways to provide any additional performance in client portfolios. As a tax attorney, I know there are a variety of actions an investor can take during a tax year to avoid or defer—but never evade—taxable investment income. One such technique is called tax-loss harvesting, or maximizing losses to provide a better overall after-tax gain.
In theory, it is quite simple. If you buy Stock A for $100 and it declines in value to $90, why not sell it, harvest the $10 tax loss and "bank it" to offset $10 in taxable gains from other investments? And if you still have a loss at the end of the calendar year after doing so, then you can deduct your losses—up to $3,000—against other income on your federal tax return and carry over excess losses to future years.