The Tax Mistake That Costs Thousands Every Year
Jane and Mark both thought they were doing everything right.
Jane, a business owner, had grown her company successfully and made smart investments along the way. Mark, a high-earning professional, had built a strong portfolio of stocks and real estate.
But despite their financial success, both of them were paying thousands more in taxes than they had to—simply because they weren’t using a strategy called Capital Loss Harvesting to offset their taxable gains.
Every year, countless business owners and individuals make the same mistake, handing over unnecessary tax dollars to the IRS. The good news? There’s a simple, legal way to fix it.
How Capital Loss Harvesting Can Reduce Your Tax Bill
Capital Loss Harvesting is a tax strategy that allows business owners and individuals to reduce taxable capital gains by selling investments that have lost value. These losses can offset gains from profitable investments, significantly lowering tax liability.
How It Works
Jane had $100,000 in capital gains from stock sales in 2025.
- She also had $30,000 in past capital losses that she hadn’t used.
- She held stocks that had lost $40,000 in value but had not yet sold them.
By selling those underperforming stocks before the end of the year, she realized a $40,000 loss and combined it with her $30,000 carryover loss, giving her $70,000 in total losses to offset her gains.
The Result? A Major Tax Reduction
Without tax-loss harvesting, Jane’s tax bill on $100,000 of gains (at a 15 percent rate) would have been $15,000.
With tax-loss harvesting, her taxable gain dropped to $30,000, reducing her tax bill to just $4,500.
By using this strategy, she legally saved $10,500 in taxes.
Why This Strategy Works for Both Business Owners and Individuals
Many people assume tax-loss harvesting is only for Wall Street investors, but it applies to anyone with investments, whether they are a business owner or an individual with a stock portfolio, real estate, or other taxable assets.
1. Offset Capital Gains from Stocks, Real Estate, or Business Sales
If you sell stocks, real estate, or even a business asset for a profit, you can offset those gains by selling other underperforming assets to reduce your taxable income.
2. Lower Your Taxable Income with Capital Loss Carryovers
If your capital losses exceed your gains, you can use up to $3,000 per year to offset regular income, such as salary or business earnings. Unused losses can be carried forward indefinitely to offset future gains.
3. Take Advantage of a 1031 Exchange for Real Estate
If you sell an investment property, you can defer paying capital gains taxes by reinvesting the proceeds into another property through a 1031 exchange.
4. Invest in Qualified Opportunity Zones
By reinvesting capital gains into a Qualified Opportunity Zone Fund, you can defer and potentially reduce your tax liability, while also supporting economic development.
5. Donate Appreciated Assets Instead of Selling Them
If you donate stock, real estate, or other appreciated assets to charity instead of selling them first, you avoid capital gains taxes and receive a deduction for the full market value.
How to Get Started with Capital Loss Harvesting
- Review Your Portfolio – Identify any stocks, real estate, or other investments that have lost value.
- Check for Unused Capital Losses – Review past tax returns (Schedule D) to see if you have any loss carryovers.
- Sell Underperforming Investments Before Year-End – Selling before December 31 allows you to use the losses.
- Follow the Wash Sale Rule – You cannot repurchase the same stock within 30 days or you lose the tax benefit.
- Report Everything Accurately – Use Schedule D (Form 1040) to properly report gains and losses.
The Bottom Line: Keep More of What You Earn
Jane and Mark were unknowingly leaving thousands of dollars on the table each year. But once they started using Capital Loss Harvesting, they legally reduced their tax bills and maximized their wealth.
The IRS allows these tax strategies—but you have to take action.
What to Do Next
- Review your investments and business assets
- Talk to a tax professional about capital loss harvesting
- Make adjustments before the end of the year to maximize savings
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