Tax-Loss Harvesting (TLH) is one of the most powerful tax strategies available to investors. It allows you to turn a market dip—a moment when your portfolio has losing investments—into a direct, positive reduction on your tax bill.

What is Tax-Loss Harvesting?

It is the simple method of selling an investment that is currently at a loss and immediately buying a "substantially identical" but legally different investment (like a similar ETF).

The losses you generate from the sale can be used to:

  1. Offset 100% of any realized capital gains you have taken this year.
  2. Offset up to $3,000 of your ordinary income (like your salary) per year.

Because TLH is complex and requires daily monitoring of hundreds of securities, it is best handled by automated platforms. The efficiency of a brokerage’s automation can be the difference between saving a few hundred dollars a year or saving thousands.

The Non-Negotiable Rules of TLH

Tax-Loss Harvesting is a feature that only works in taxable accounts (standard brokerage accounts). It does not work in retirement accounts like IRAs or 401(k)s, as those accounts are already tax-advantaged.

Before comparing the platforms, you must know the Wash Sale Rule.

The Wash Sale Rule

The IRS prevents you from "gaming" the system by selling a losing stock just to claim a loss and then immediately buying it back.

  • The Rule: You cannot claim a tax loss if you buy the same security or a "substantially identical" security within 30 days before or after the sale.
  • The Brokerage's Job: The brokerage's automated TLH system must ensure that when it sells a losing asset (e.g., Vanguard Total Stock Market ETF), it immediately replaces it with a legally non-identical but similar asset (e.g., iShares Core S&P 500 ETF). The best systems handle this replacement process instantly and flawlessly.

🏆 The Winner: Best Overall for Tax Automation and Sophistication

Wealthfront

Wealthfront is widely recognized as the leader in automated tax optimization. It’s designed for the strictly hands-off investor who wants the most powerful, continuous TLH features available.

  • Best For: Investors with large, taxable accounts who want maximum, daily optimization without human oversight.
  • TLH Automation: Wealthfront offers continuous, daily tax-loss harvesting. The system checks for harvesting opportunities multiple times per day.
  • Advanced Features (Direct Indexing): For investors with balances over $100,000, Wealthfront offers Direct Indexing. Instead of buying a single index ETF (like the S&P 500), the system buys all 500 individual stocks in the index. This allows the system to harvest losses on individual stocks within the index, creating more loss opportunities than a single ETF allows.
  • Fees: 0.25% annual advisory fee.
  • Account Minimum: $500 to access the automated investing platform and TLH features.

The Runner-Up: Best for Beginners and Goal-Based TLH

Betterment

Betterment was one of the first to offer automated TLH and remains an excellent choice, especially for the beginner who wants a simple, goal-focused platform.

  • Best For: Beginners starting with small accounts or those who want access to human financial advice (via their Premium plan).
  • TLH Automation: Betterment offers its "Tax Loss Harvesting+," which integrates TLH with the client’s cash flows and rebalancing schedule. It focuses heavily on tax coordination, ensuring assets that are most tax-efficient are placed in the most tax-advantaged accounts (e.g., placing high-income bonds in a tax-deferred IRA).
  • Tax Coordination: This feature is excellent for ensuring the overall portfolio is tax-optimized, not just the loss-harvesting element.
  • Fees: 0.25% annual advisory fee (for the basic Digital Plan).
  • Account Minimum: $0 account minimum (best entry point).

The Best for DIY Automation

M1 Finance

M1 Finance is a hybrid broker that combines self-directed investing with automation. While it doesn't offer the daily TLH found at Wealthfront, it provides a strong, user-controlled version of the strategy.

  • Best For: Investors who want to design their own portfolio (their "Pie") but still want the automation of tax-efficient trading.
  • TLH Automation: M1 Finance has tax-efficient selling. When you withdraw cash or rebalance, M1 automatically prioritizes selling assets that minimize your tax bill (e.g., selling losses first, then long-term gains, then short-term gains).
  • Control: While M1 doesn't offer automated TLH, the user has full control over their investment selection, which is a major advantage for sophisticated investors.
  • Fees: $0 management fee (a subscription fee may apply for certain features).
  • Account Minimum: $100 for a brokerage account.

Head-to-Head: Tax-Loss Harvesting Comparison

BrokerageTLH FrequencyAdvanced FeatureMinimum for AutomationBest Feature for Beginners
WealthfrontContinuous/DailyDirect Indexing (>$100k)$500Maximize tax savings on every market dip.
BettermentIntegrated with transactions/rebalancingTax Coordination (Asset Location)$0Simplest entry point, comprehensive tax coordination.
M1 FinanceNone (Tax-efficient selling only)Full Portfolio Customization$100Zero management fee for self-directed TLH.

Final Verdict: Match the Automation to Your Wallet

Tax-Loss Harvesting provides the greatest benefit when your portfolio is large and your income is high.

  1. For the High Earner ($100k+): Wealthfront is the best choice. Its daily harvesting and access to Direct Indexing will likely generate the highest net tax savings.
  2. For the Beginner (Under $5k): Betterment is the best starting point. You get access to the powerful TLH+ feature for a $0 minimum balance, and its Tax Coordination tool is ideal for starting your tax planning correctly.