How tax harvesting before March 31 can bring down your outgo

As the financial year draws to a close, investors are keenly eyeing strategies to optimize their tax liabilities. One such method gaining traction is tax harvesting, a tactic designed to minimize the taxes owed on capital gains, especially from equities and equity mutual funds. By strategically selling certain investments at a loss, investors can offset gains made elsewhere in their portfolio, thus reducing the overall tax burden. The mechanics of tax harvesting involve a careful assessment of one's investment portfolio to identify underperforming assets that can be sold to realize a loss. This loss can then be used to counterbalance any capital gains, effectively decreasing taxable income. It's a method that requires precision and timing, often being most effective when executed before the fiscal year-end on March 31. Investors must also be mindful of the wash-sale rule, which prohibits repurchasing the same or substantially identical security within 30 days of the sale, to ensure the loss is eligible for tax deduction. Financial advisors often recommend tax harvesting as part of a broader tax planning strategy, emphasizing its potential to enhance after-tax returns. While the primary goal is to reduce tax outgo, the process also provides an opportunity to rebalance the portfolio, potentially aligning it more closely with long-term investment goals. As the deadline approaches, investors are urged to consult with financial professionals to tailor their approach, ensuring compliance and maximizing benefits.

— Authored by Next24 Live