What is the role of tax-loss harvesting in improving tax efficiency?

Tax-loss harvesting is a tactic used by investors to improve the tax efficiency of their portfolios. Fundamentally, this approach requires purposely selling assets at a lower price to balance out profits from other investments, consequently lowering the total tax responsibility. For investors, strategically recognizing losses can help offset capital gains and reduce the amount of taxes paid on investment returns.
This method is especially beneficial for controlling tax obligations on short-term profits, which usually incur higher tax rates compared to long-term profits. In addition, extra losses that exceed gains can be used to lower taxes on regular income, providing more chances to save on taxes.
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