Tax loss harvesting: Money managers' clever new trick to cut taxes for rich clients

What do you give a wealthy client who has everything? Well, Wall Street has come up with a brilliant idea. A Bloomberg report shows the solution is a loss-making investment.

That's the idea behind the latest strategy on Wall Street. This is a clever twist on the well-known tax-loss harvesting technique, a contentious aspect of wealth management for many years.

The practice of selling losing investments to reduce the tax owed on profits made elsewhere in a portfolio is known as tax-loss harvesting.

Although it's a useful instrument frequently used in equities ownership, it has a significant drawback. An investor doesn't always have a loss-making investment. This can be particularly true in the US stock market, which has tripled in the last decade and continues to set new milestones.

Anyone concerned about growing wealth disparity will likely be alarmed by this slick Wall Street move. Most investors cannot afford tax long-short methods. Like with other tax-loss harvesting tactics, the wealthiest often reap the rewards from such tricks.

Americans do not pay capital gains taxes until they decide to sell an asset. That rule has withstood several challenges in recent months. President Joe Biden has suggested taxing the unrealised earnings of the ultra-wealthy.

While Kamala Harris has previously supported Biden's concept, she has not stated whether she will pursue such legislation.