Tax-Loss Harvesting helps turn a dip in the market into a tax deduction. When you claim a loss on an investment, you can lower your tax bill at the end of the year, which means more money to reinvest. We like to say it can help you boost your after-tax returns — because that’s exactly what we designed it to do.

Need more proof before you jump in? You can read our Blog, or just keep scrolling to learn more.

How Tax-Loss Harvesting can make you more money

When you sell a losing investment to claim a tax deduction and then reinvest the money you didn’t pay in taxes.

Our secret recipe? Homemade automation.

We’re constantly looking for those magic ingredients that can help lower your taxes. Here’s how it works.

Part 1:

We identify the loss

Pretend your investments are slices of pie. A slice of rhubarb pie goes for a premium — $10. But soon, the market is flooded with rhubarb and the price falls to $5.

Part 2:

We harvest the loss

Thanks to our super-smart software, we find some delicious gooseberry pie for just $5, so we sell your rhubarb and buy gooseberry instead. Pie is pie, so really, your risk appetite doesn’t change. Different, but still dessert.

We saved you $42.61 on your taxes with Tax-Loss Harvesting.

We saved you $9.53 on your taxes with Tax-Loss Harvesting.

Part 3:

We help lower your taxes

While we wait for the baked desserts sector to rebound (give it time), you can use the $5 loss as a deduction to help lower your taxes — money you now have to reinvest (i.e., buy more pie). And there it is — we’ll keep trading slices to keep lowering your taxes. At every chance we have.

Tax-Loss Harvesting benefits will vary. Wealthfront doesn’t provide tax advice.

Wealthfront does wonders for your taxes.

It also does a whole lot more.

Automatic trades

Our software does all the trading for you to help you maximize returns.

Expert-built portfolios

Our recommended portfolios are built by financial experts and personalized to your risk profile.

Fully customizable

Adjust your allocations and edit your portfolio with hundreds of funds to choose from.

Tax-Loss Harvesting

We find opportunities to turn market dips into tax savings, to help boost your after-tax returns.

Automatic rebalancing

We’ll balance your funds as the market moves to keep you in line with your investment targets.

Delightfully easy

Track your progress, see your net worth and link all your accounts in our easy-to-use app.

Taxes are annoying. Let’s break it down.

Some helpful FAQs.

You had me at “boost.” When do I get the money?

You’ll have to wait for a bit of market volatility first — look for a notification from us that we harvested losses. The “boost” comes when you offset your taxable gains with said losses on your taxes and (very smartly) reinvest the savings to get them compounding over time.

Do you do Tax-Loss Harvesting for the Stock Investing Account?

Nope. We only offer Tax-Loss Harvesting for the Automated Investing Account. When you hire us to manage your portfolio for you, we can buy and sell securities to harvest your losses, and help you earn more in the process.

Tell me more about the tax deferrals thing.

Glad you asked. The good thing about Tax-Loss Harvesting is that it can help lower your taxes when you sell investments, or it can help lower the taxes on your ordinary income, up to $3,000. If you don’t use these losses you’ve harvested in any given year, you can defer that to the next year. Or the next.

Do I need to worry about capital gains tax?

Actually, Tax-Loss Harvesting is especially valuable for investors who regularly recognize short-term capital gains. Harvested losses can be applied to offset both capital gains and up to $3,000 in ordinary income annually. And any losses that can’t be applied in a given tax year can be carried over to offset future income and capital gains.

Is there a limit to how much loss I can harvest?

Great question. You can apply your harvested short-term losses to offset short-term gains or reduce your taxable ordinary income by up to $3,000 per year. And you can even carry forward your tax loss to future tax years, or offset your long-term gains. And you can keep using or deferring your harvested losses for tax breaks for future years.

Do you offer direct indexing?

You can access the tax benefits of direct indexing with as little as $5,000 with S&P 500 Direct (with a management fee of 0.09%). You can also enjoy direct indexing in a diversified Automated Investing Account with a minimum account balance of $100,000 (with a 0.25% management fee). Direct indexing in our Automated Investing Account includes additional indices beyond the S&P 500® and completion ETFs.

Wait, what kind of accounts does this work on?

Good question. Tax-Loss Harvesting is only relevant to taxable accounts. It doesn’t apply to tax-advantaged accounts like a 529, IRAs or 401(k)s, since gains and losses in those types of accounts are not taxable events.

What about wash sales? And what’s a wash sale?

Sounds more fun than it is, honestly. The IRS defines a wash sale as buying back a stock you've sold (or one that is "substantially identical") within 30 days. When we harvest a loss, we purchase an ETF that tracks a different index, but is highly correlated with the ETF we sold, to keep your portfolio more or less the same. We can buy the original ETF back after 31 days, if it shows renewed potential.

I’m sold. How soon can this start happening?

We’re ready when you are. And our robots are too. When you open and fund your account, our software immediately starts looking for TLH opportunities daily. At the end of the year, we’ll send you a Form 1099 to be filed with your tax return that includes the relevant investment transactions in your Wealthfront accounts, including those from Tax-Loss Harvesting.