What is the purpose of tax harvesting in investment management?

The primary purpose of tax harvesting in investment management is to sell securities at a loss to reduce capital gains tax. This strategy involves recognizing losses on investments that have declined in value, which can then be used to offset realized gains from selling other profitable investments. By strategically selling these underperforming assets, investors can lower their taxable income, effectively minimizing the tax liability associated with capital gains. This approach is particularly advantageous in a taxable investment account, where capital gains tax is often a significant consideration.

The ability to offset gains with losses makes tax harvesting a valuable tool for managing tax exposure and enhancing overall investment efficiency. It allows investors to maintain their desired asset allocation while strategically managing their tax responsibilities.