GABE NELSON FINANCIAL, INC.
Tax-Loss Harvesting: Turning Down Positions Into Real Tax Savings
A down position in your portfolio isn’t just a paper loss. Before December 31, it can become a real reduction in your tax bill.
By Gabe Nelson, CFP® · Gabe Nelson Financial, Inc. · ~6 min read
Nobody enjoys seeing red in their brokerage account. But a position that’s down isn’t only a disappointment — it’s an opportunity, if you act before the year ends. It’s called tax-loss harvesting, and it’s one of the most straightforward year-end moves that high earners routinely leave on the table.
I’m Gabe Nelson, a CFP® who works with high-earning solopreneurs nationwide. Harvesting is where your investment strategy and your tax strategy meet — and the fourth quarter is exactly when that intersection matters most.
How it works
This one lives in your taxable brokerage account — it doesn’t apply inside retirement accounts. When you sell a position that’s down, you “realize” a capital loss. That loss offsets capital gains you’ve realized elsewhere in the year, dollar for dollar. If your losses exceed your gains, you can use up to a few thousand dollars against ordinary income, and carry the rest forward to offset gains in future years. So if you took a sizeable gain this year, harvesting losses against it before year-end can erase a real chunk of the tax on it.
Picture a solopreneur who sold an appreciated position early in the year and realized a large gain. Left alone, that gain lands in full on the return. But by reviewing the rest of the portfolio for positions that are down and harvesting those losses before December 31, a meaningful share of that gain can be offset — turning paper red ink into a smaller, real tax bill.
There’s an ordering to how the losses get used, and it’s worth understanding. Losses first offset gains of the same type — short-term against short-term, long-term against long-term — then offset across the two. Because short-term gains are taxed at your higher ordinary rate while long-term gains get preferential treatment, a harvested loss that knocks out a short-term gain is often the most valuable of all. Once all your gains are offset, up to $3,000 of leftover loss can go against ordinary income, and anything beyond that carries forward indefinitely to future years — so a loss you harvest today can keep working for you long after this return is filed.
The one rule to respect: the wash sale
The rule that trips people up is the wash-sale rule. You can’t sell a position for the loss and buy the same — or a “substantially identical” — security back within 30 days, or the loss is disallowed. But you don’t have to sit in cash and risk missing a rebound. You can move into something similar but not identical — a different fund tracking a comparable index, for instance — and keep your market exposure the entire time. The goal is to capture the tax loss without derailing your investment plan.
The loss only counts if you realize it before the calendar flips. In April, it’s just a story about what you could have done.
Why high earners leave this on the table
If harvesting is this straightforward, why do so many successful solopreneurs miss it? Usually for the same reason they miss the other year-end moves: nobody is looking at the whole picture at the right time. Your investment accounts might sit at one firm, your tax return gets handled by a CPA who sees the gains only after the year is over, and no one is connecting the two in November when there’s still time to act. The gain and the unrealized loss live in different silos, and the chance to match them up quietly expires on December 31. It’s rarely a knowledge problem — it’s a coordination problem.
Why it belongs in your year-end plan
Tax-loss harvesting is part of the same year-end discipline as setting your S-corp salary, timing a bonus, or funding a retirement plan. All of it comes down to decisions that have to be finalized before the calendar turns. The loss is only usable if you realize it by December 31 — which is what makes it a Q4 move, not an April one.
There’s a quieter, longer-term benefit too. Harvesting isn’t only about this year’s bill — it also builds a reserve of carried-forward losses you can deploy in future years, including against gains you might realize on purpose down the road, like rebalancing a concentrated position or funding a large expense from your portfolio. In that sense, a year with market losses can plant the seeds for cleaner, cheaper decisions years later. What feels like a bad market moment becomes stored tax flexibility.
A tool, not a strategy unto itself
One important caveat: harvesting is a tool, not a reason to sell good investments. You harvest losses that already fit your plan — positions you were going to trim while rebalancing, holdings you’d clean up anyway — not by torching a sound portfolio just to manufacture a deduction. And because it sits at the intersection of your tax picture and your portfolio, it’s worth coordinating both sides together. That’s exactly where an advisor who can see your investments and your tax situation at once earns their keep — harvesting the right losses, avoiding the wash-sale trap, and keeping your long-term strategy intact.
A couple of practical points that come up constantly. Harvesting works on the taxable account only — there’s nothing to harvest inside an IRA or 401(k), because those accounts aren’t taxed on gains and losses in the first place. It also doesn’t change what you’re invested in, if you do it right; the whole point of moving into a similar-but-not-identical holding is that your portfolio stays essentially where you want it while the loss gets banked. And it’s not a once-a-year ritual reserved for December — losses can be harvested whenever markets hand them to you, though year-end is when it gets the most attention because the deadline concentrates the mind.
If you’ve never done it, the starting point is simply visibility: knowing which of your positions are currently below what you paid, what gains you’ve already realized this year, and whether the two can be matched up before December 31. Most solopreneurs have never had that picture pulled together in one place — which is exactly why the opportunity so often slips by unnoticed until the gain shows up on the return in April.
Done well, it’s quietly powerful: the same market dip that’s frustrating on paper becomes a lever that lowers what you actually owe — as long as you act while the window is still open.
Coordinating tax-loss harvesting with the rest of your year-end plan — alongside your CPA — is part of a Year-End Tax Strategy Session. Book one at StartWithGabe.com, or download the free Scaling Wealth Blueprint to see how the pieces work together.
The best time to start was years ago. The second best time is right now.
Educational only — not personalized tax, legal, or investment advice. Client details are anonymized composites and figures are illustrative; tax deadlines, brackets, and limits change from year to year. Coordinate with your CPA and confirm current rules before acting. Gabe Nelson is an Investment Adviser Representative; advisory services are offered through Gabe Nelson Financial, Inc.