Tax Loss Harvesting in Wealth Management: 2025 Trends and Best Practices

Tax loss harvesting (TLH) is rapidly transforming from a year-end ritual into a core element of proactive, tech-driven wealth management. For both investors and Registered Investment Advisor (RIA) firms, staying ahead of these changes is vital for maximizing after-tax returns and meeting modern client expectations. This blog offers an educational overview of how TLH strategies work, key benefits for investors, best practices, and a comparison of leading RIA technology solutions as we move deeper into 2025.

What Is Tax Loss Harvesting?

Tax loss harvesting is a technique that involves selling securities at a loss to offset taxable gains elsewhere in a portfolio. By doing so, investors can reduce their net taxable income and, in some cases, carry forward losses to future tax years. The proceeds from the sale are typically reinvested into similar, but not “substantially identical” investments, maintaining the desired portfolio exposure while complying with IRS “wash sale” rules.

Why Tax Loss Harvesting Is Essential in 2025

Several recent trends have elevated the importance of TLH:

• Market Volatility: Ongoing fluctuations from global economic risks and tightening U.S. monetary policy have produced frequent opportunities to realize losses while maintaining long-term investment goals.
• Technology Adoption: Automation and direct indexing make it possible to identify, analyze, and harvest losses throughout the year, not just in December.
• Changing Tax Laws: With major tax reform sunsets approaching, investors are more motivated to manage gains and losses proactively.

Estimates from major wealth platforms suggest that continuous, automated TLH can improve an investor’s annual after-tax return by 70 to 330 basis points (0.70% to 3.3%), depending on account size, frequency of harvesting, and selection of replacement assets.

How Automated Tools Help Investors

Direct indexing and automated TLH tools are reshaping the industry:

• They allow investors even with modest account sizes to benefit from granular, daily monitoring for loss opportunities.
• Accounts once limited by size thresholds ($250k or more) now gain access at much lower amounts (some starting under $10k), greatly expanding who can benefit.
• These technologies eliminate much of the manual effort and compliance risk, especially concerning the complex wash sale rules.

Platforms like Wealthfront have reported, for instance, that their average client received a 1.63% annual after-tax benefit from automated TLH since inception, and major platforms now offer easy-to-understand dashboards tracking taxes saved year by year.

Best Practices for RIAs and Investors

To maximize the advantages of TLH in 2025, consider the following:

• Frequency: Monitor portfolios at least weekly, not just at quarter- or year-end.
• Thresholds: Establish clear rules (e.g., only harvest losses exceeding 7% below purchase price) to optimize tax benefits without excessive trading.
• Replacement Assets: Select replacement investments that avoid the “substantially identical” rule but closely match the original’s risk/return profile.
• Household Coordination: Check for wash sales across all household accounts, including taxable and retirement accounts.
• Reporting: Document tax benefits and educate clients with quarterly “tax saved” reports to enhance transparency and perceived value.

Scenario Examples

• High Net Worth Portfolio: An investor with a $1 million taxable account saw $120,000 in harvested losses. In the 37% tax bracket, this resulted in an immediate $44,400 tax savings. Reinvesting these savings over 15 years could add over $90,000 to portfolio value through compounding.
• Smaller Balanced Portfolio: A $250,000 ETF-based account underwent quarterly TLH, harvesting $12,000 in losses enough to fully offset gains from another investment sale, resulting in no capital gains tax owed that year.

Comparing Top RIA Platforms — Including ETNA

ETNA RIA Suite stands out with:

• Fast onboarding for RIAs (2-week rollout, white label branding)
• No asset minimums
• Real-time risk and compliance features (wash sale checks, pattern-day-trading safeguards)
• Support for equities, ETFs, options, and fractional shares

Meeting Investor Expectations

Surveys show that nearly 80% of affluent investors now expect some form of automated TLH from their advisor. Moreover, 62% say they would leave their advisor for a competitor who demonstrates better after-tax performance reporting. Clear communication, robust automation, and transparent “tax saved” reports are now table stakes.

Getting Started: Implementation Checklist

For RIAs and investors aiming to ensure best-in-class TLH in 2025:

• Audit custodial feeds to ensure tax-lot data is accurately captured.
• Select a TLH platform that integrates across multiple custodians and supports household accounts.
• Set up recurring loss scans and replacement-asset maps.
• Train advisors on explaining TLH logic and wash sale implications.
• Regularly review “tax saved” reporting with clients to underscore the value added.

Meeting Investor Expectations

Tax loss harvesting, powered by ever-improving technology and direct-indexing tools, is now a core discipline for RIAs and self-directed investors alike. With client expectations rising and regulatory changes ahead, integrating robust tax management into every step of the wealth process isn’t just smart it’s essential for growth and retention in 2025.

Conclusion

Tax loss harvesting, powered by ever-improving technology and direct-indexing tools, is now a core discipline for RIAs and self-directed investors alike. With client expectations rising and regulatory changes ahead, integrating robust tax management into every step of the wealth process isn’t just smart it’s essential for growth and retention in 2025.