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Tax-Loss Harvesting Comes With Hidden Risks

Investors crushed by the volatile markets of 2022 use tax-loss harvesting to boost returns. But the tax strategy comes with pitfalls everyone should know.

Tax-loss harvesting can be fruitful but investors have to be careful. Here’s how it works and where the pitfalls are. Illustration: Alex Nabaum

By Lori Ioannou

Investors who are licking their wounds after incurring losses in 2022 due to market volatility are now looking for ways to boost their portfolio returns by year’s end.

One widely used strategy is tax-loss harvesting. This practice of selling some assets that have fallen in value and then using losses to offset capital-gains tax liability not only reduces your tax bill, but also can be used to rebalance your portfolio.

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