When markets get choppy, some clients ask for proactive ways to take advantage of everything going on. For business owners and professionals with money in brokerage accounts, they could have an opportunity to lower their taxes without altering their overall investment plan. Tax loss harvesting is a strategy that lets you use temporary losses to reduce your tax bill while keeping your portfolio working toward the same long-term goals.
What is Tax Loss Harvesting?
This strategy is a tax planning tool to help you save on capital gains tax. Within a brokerage or investment account, any time you sell an investment for more than you paid for it, you will owe capital gains tax. However, any time you sell an investment for less than what you paid for it, you can get a “credit” or “write-off” towards your remaining capital gains. If you hold investments for at least a year, those taxes would be calculated at long-term capital gains rates. In 2025, that is a maximum of 20% (see below). For investments held less than a year, they are considered short-term gains/losses and would be taxed as ordinary income (which is considerably higher for a lot of business owners).
2025 Capital Gains Tax Rates
| Tax Rate | Taxable Income for Single Filers | Taxable Income for Married Filing Jointly |
| 0% | $0 to $48,350 | $0 to $96,700 |
| 15% | $48,351 to $533,400 | $96,701 to $600,050 |
| 20% | $533,401 or more | $600,051 or more |
Why is this important? Because it could provide the opportunity for investors to offset their capital gains tax without necessarily affecting the performance of their investments. The tax loss harvesting process involves selling investments at a loss and reinvesting those proceeds into another investment. For example, if you own $10,000 worth of Home Depot stock and the value drops to $8,000. What would happen if you sold the Home Depot shares, bought $8,000 worth of Lowe’s stock, and the Lowe’s value returned to $10,000? You start and end at the same portfolio value, but you “harvested” the $2,000 loss that can offset other gains.
Every strategy has trade-offs. To successfully harvest your tax losses, you must buy new investments that are not substantially identical. Meaning, you cannot sell Home Depot shares and the next minute buy them back. The IRS has wash sale rules against such actions. So, make sure the new investments fit with your overall investment plan and have a reasonable expectation that they will increase in value comparable to your original investment. The substantially identical and wash sale rules are important, so make sure you consult a tax advisor first.
Who This Strategy Is For
Professionals and business owners could benefit greatly from tax loss harvesting if done in the right context. To offset capital gains, the first threshold is having plenty of assets in a brokerage or taxable account. Those who have most of their wealth within retirement accounts like a 401k will not have nearly the same benefit for this strategy. Any account not subject to capital gains tax would not apply to this strategy.
Those better fit for this strategy do have money outside retirement accounts, and they want to lower their taxes both now and in the future. This is perhaps the best part of harvesting tax losses, because taxpayers who start harvesting losses may eventually where there are no gains to offset. If that is the case, two things happen. First, you can claim up to a $3,000 deduction on your tax return, reducing your income. Secondly, any remaining losses above $3,000 can be carried forward to future tax years.
What does this mean? Imagine you plan to sell a rental property or your business in the next few years. This strategy could allow you to accumulate capital losses that may help offset gains from a future business or property sale, if structured properly. There are a lot more variables for business owners to consider when selling assets like this, but having the ability to offset some or all of the capital gains tax could be a massive advantage.
How Tax Loss Harvesting Works
Some entrepreneurs give advisors grief for only wanting business owners to take money out of the business, just to put it into the market. I’ve heard the arguments before, but this strategy is undeniably powerful if done correctly. Each year, when markets drop, advisors can help investors sell their losses and purchase similar, but distinctly different, investments. Then, as prices and markets return to normal (hopefully), their portfolio performance can be relatively unaffected while they build a strong tax plan.
Once losses are captured, offsetting other gains is a key benefit. For those who bought a stock like Apple years ago, they could be sitting on hundreds of thousands of “unrealized gains” (Capital gains that you haven’t sold yet). Tax loss harvesting can help them offset the capital gains tax they will incur.
Then, once you surpass all the other gains generated, work with an accountant to start banking the capital losses over the years. Carrying those losses each year can help offset the larger transactions throughout the years. Depending on your situation, it may be unreasonable to think you could offset your entire tax liability on those sales. However, each dollar of capital loss would save you the 15% or 20% capital gains tax you otherwise would have paid.
Tax Loss Harvesting
There are a lot more nuances and features of tax loss harvesting, this only scratches the surface. The basics, however, are what is important. Selling assets at a loss and reinvesting them into similar but different assets can provide major tax advantages. Make sure the portfolio is not too adversely affected and start harvesting losses to lower your taxes. Then get creative. Think about other areas in your financial life where harvesting losses could help. This strategy is by no means a silver bullet, but it can be a good addition to your overall tax and investment plans. Wondering if tax loss harvesting could play a role in your overall strategy? This is the time to take a second look.
TC Falkner 