Most investors focus on returns. Our focus is on what you actually keep after taxes. Because at the end of the day, after-tax return is what drives real, long-term wealth. One of the ways to improve that outcome, especially in volatile markets, is through tax-loss harvesting.
At its core, tax-loss harvesting is about putting market declines to work. When a position in your portfolio is down, we can realize that loss and use it to offset capital gains and reduce taxable income (subject to IRS rules and limitations). That can help lower your overall tax burden.
Just as important, we’re not stepping out of the market to do this. The goal is to stay fully invested while making the portfolio more tax-efficient. In the right structure, we can sell a position, capture the loss, and reinvest into something similar so your overall strategy stays intact (subject to applicable tax rules, including wash sale limitations).
One of the biggest issues I see is that many investors simply aren’t positioned to take advantage of this. If you’re concentrated in a handful of stocks or sitting entirely in index funds, it becomes much more difficult to harvest losses without disrupting your exposure. You’re often forced into an all-or-nothing decision; either take the loss and sit in cash or stay invested and miss the tax opportunity.
That’s why portfolio construction matters. A properly diversified, actively managed portfolio may create more flexibility and allow us, as advisors, to be intentional in our decisions instead of reactive. Many advisors don’t implement this consistently, not because it lacks value, but because it requires a more hands-on, ongoing approach.
Some industry research has estimated that tax-loss harvesting and related tax-aware strategies may contribute approximately 1% to 2% in incremental after-tax value annually in certain environments, though results vary significantly based on individual circumstances and market conditions.
In one example scenario, I recently met with a client who had been preparing to sell their business over the last few years. Already in a higher tax bracket and expecting a larger capital gains event, they were seeking any way they could save in taxes as they transitioned to a new chapter of life.
Instead of waiting until the sale to think about taxes, we planned ahead. During that window, we used periods of market volatility, like the tariff saga in March of 2025, to systematically harvest losses across the portfolio. Those losses weren’t random; they were intentional and built over time.
When the business ultimately sold, those accumulated losses were used to offset a portion of the capital gains (subject to applicable tax rules). By harvesting losses ahead of time, you create a pool of tax offsets that can be used when a major gain occurs, like selling a business, so you keep more of the proceeds invested instead of paying it out in taxes.
Just as important, we didn’t disrupt the investment strategy along the way. The portfolio stayed aligned with the long-term plan; we simply made it more efficient.
If there’s one thing I encourage clients to understand, it’s this: market declines don’t have to be purely negative. Tax-loss harvesting gives us a way to turn those temporary declines into a tool. If a position is down, we can capture that loss and use it now or later. In some cases, we’re also re-entering at a more attractive price point on the same stock (subject to tax considerations). And throughout the process, we’re staying aligned with the long-term plan. What this really creates is flexibility.
Over time, we’re building a reserve of tax losses that we can use when it matters most. That could be offsetting gains from selling a business or real estate, rebalancing without creating unnecessary tax drag, or managing income in retirement in a more tax-efficient way. It gives us more control over when and how taxes show up. Markets are always going to fluctuate. The difference is whether we’re just riding that volatility or using it to improve your outcome.
For most investors, this strategy can provide meaningful tax efficiencies, especially if you’re preparing for a large liquidity event, trying to unwind a concentrated position, or just thinking ahead about future tax exposure.
When I work with clients, this isn’t a one-time decision. It’s an ongoing process. We’re continuously monitoring the portfolio, looking for opportunities, and adjusting in a way that ties back to your overall financial plan. The goal is to make sure your investment strategy and your tax strategy are working together in tandem, not separately.
Tax-loss harvesting isn’t about chasing losses. It’s about being intentional. Markets will always be volatile; the difference is making that volatility work in your favor. Because in the end, it’s not just about how your portfolio performs. It’s about how efficiently it performs after taxes.
If tax-loss harvesting is something you would like to discuss more, schedule a call with an advisor today at GDS Wealth Management. We will walk through the process together to find a way to make your investment strategy and tax strategy work together.
GDS Wealth Management is a registered investment adviser, and the author is an Investment Adviser Representative; registration does not imply a certain level of skill or training. This material is for informational purposes only and should not be considered personalized investment, tax, or legal advice. Any examples are illustrative and do not represent actual client results. Any discussion of tax benefits or outcomes is not guaranteed, and results will vary based on individual circumstances, market conditions, and other factors; tax-loss harvesting may not be beneficial in all situations and is subject to IRS rules, including wash sale restrictions. All investments involve risk, including the possible loss of principal, and there is no guarantee that any strategy will be successful. Please consult your tax and legal professionals before implementing any strategy, and review the firm’s Form ADV at www.adviserinfo.sec.gov for additional information on services, fees, and conflicts of interest.