Automated daily tax-loss harvesting is available, at no additional cost, to all clients with a taxable, non-retirement account.
Tax-loss harvesting is a technique used to lower your taxes while maintaining the expected risk and return profile of your portfolio. It harvests previously unrecognized investment losses to offset taxes due on your other gains and income. You can reinvest these tax savings to significantly grow the value of your portfolio.
Wealthfront developed software to make this service, traditionally only available to accounts in excess of $5 million, available to all taxable accounts. Between 2000 and 2014, our research shows tax-loss harvesting would have increased your after-tax returns by more than 1.55% a year. Over the next 20 years that could add more than $76k to a $100k portfolio.
Yes. The IRS allows tax‐loss harvesting, or “tax selling,” and financial advisors to the rich have done it manually for decades. For more about IRS allowances for capital gains and capital losses, please see the IRS website or consult your personal tax advisor.
Yes. Because the tax savings generated from tax-loss harvesting can be reinvested and compounded over time, you are almost always better off paying taxes later rather than sooner. Even if you can’t use the losses harvested in the near term, you can carry forward your losses and use them in later years.
No catch. In addition to diversification and rebalancing, Wealthfront clients who invest in a taxable, non-retirement account get access to tax-loss harvesting. When you activate tax-loss harvesting, Wealthfront will continuously monitor your eligible accounts to harvest losses when appropriate.
Come tax time, Wealthfront will provide you with a Form 1099. You can write off any harvested losses against your capital gains and up to $3k a year against your ordinary income. You can even carry forward any remaining losses from one year to the next.