Tax Loss Harvesting for Self-Employed: A Complete 2025 Guide to Maximizing Deductions Across Business, Brokerage & Retirement Accounts

Tax loss harvesting represents one of the most underutilized tax strategies for self-employed professionals. By strategically selling investments at a loss, you can offset gains and reduce your overall tax burden. For 1099 contractors and freelancers managing multiple accounts—business brokerage accounts, personal investment portfolios, and retirement plans—tax loss harvesting becomes even more powerful when coordinated properly. This guide explores the mechanics, rules, pitfalls, and opportunities specific to self-employed taxpayers in 2025.

Table of Contents

• What Is Tax Loss Harvesting and Why Does It Matter for Self-Employed?
• Key Takeaways
• How Do Capital Losses Work in 2025?
• What Are Wash-Sale Rules and How Do They Affect Self-Employed Investors?
• How Should You Coordinate Tax Loss Harvesting Across Multiple Account Types?
• What Entity-Specific Strategies Apply to Your Business Structure?
• When and How Should You Execute Tax Loss Harvesting?
• What Are the Most Common Tax Loss Harvesting Mistakes?
• Uncle Kam in Action
• Next Steps
• Frequently Asked Questions
• Related Resources

Key Takeaways

• Tax loss harvesting allows you to offset investment gains by selling depreciated securities strategically.
• The IRS wash-sale rule prohibits repurchasing substantially identical securities within 30 days before or after a loss sale.
• Self-employed individuals can deduct up to $3,000 in net capital losses annually against ordinary income, with unlimited carryforward.
• Coordinating harvesting across business, personal, and retirement accounts requires careful planning to maximize tax benefits.
• Entity type (sole proprietor, LLC, S Corp) affects how capital losses flow through your tax return.

What Is Tax Loss Harvesting and Why Does It Matter for Self-Employed?

For self-employed professionals, tax loss harvesting offers a powerful income-reduction tool that’s often overlooked. Unlike W-2 employees with limited investment activity, self-employed individuals typically maintain multiple investment accounts: a business brokerage account for active trading or quarterly investments, a personal investment portfolio, and retirement accounts like SEP-IRAs or Solo 401(k)s. This complexity creates both opportunities and risks. When executed properly, tax loss harvesting can save self-employed investors thousands of dollars annually. When executed poorly—especially when the wash-sale rule is violated—it can result in denied deductions and IRS scrutiny.

The core concept is straightforward: you deliberately sell investments that have declined in value to lock in losses. These losses offset capital gains you’ve realized elsewhere, reducing your net capital gain income. If losses exceed gains in a given year, you can deduct up to $3,000 against your ordinary income (wages, self-employment income, etc.). Any remaining losses carry forward indefinitely, providing tax benefits in future years.

Why Tax Loss Harvesting Matters More for Self-Employed Investors

Self-employed individuals face unique tax dynamics that make tax loss harvesting especially valuable. First, you pay both income tax and 15.3% self-employment tax on your business income, creating a combined federal-plus-SE-tax rate often exceeding 35-40% on the last dollars earned. Reducing ordinary income through capital loss deductions directly reduces this higher combined rate. Second, self-employed investors often accumulate investment income across multiple accounts, creating regular opportunities for harvesting. Third, the complexity of coordinating business entity taxation with personal investment strategy means professional guidance becomes essential—and tax loss harvesting is a technique where precision matters significantly.

The Mechanics: How Tax Loss Harvesting Works in Practice

Consider a concrete example: You’re a self-employed consultant with $150,000 in net business income. You maintain a personal brokerage account and have realized $12,000 in capital gains from selling appreciated stocks this year. You also hold some technology shares that have declined by $8,000 from your purchase price. By harvesting this loss—selling the depreciated shares—you realize an $8,000 capital loss. This loss offsets $8,000 of your $12,000 gains, reducing your net capital gain to $4,000. The $4,000 gain is taxed at your long-term capital gains rate (15% or 20% depending on income). Without harvesting, the full $12,000 would have been taxed. You’ve saved approximately $1,200 in taxes ($8,000 × 15%). Additionally, if you had excess losses beyond your gains, you could deduct $3,000 against your self-employment income, saving another $600 (at a 20% combined rate).

How Do Capital Losses Work in 2025?

Understanding how the IRS treats capital losses is essential for maximizing your tax loss harvesting benefits. The rules are clear and have remained consistent for many years, making 2025 a predictable planning year on this specific issue.

Capital Loss Deduction Mechanics and Annual Limits

The IRS allows you to use capital losses in a specific priority order. First, all capital losses offset all capital gains, regardless of holding period. Long-term capital losses offset long-term capital gains first, then short-term gains. Short-term losses offset short-term gains, then long-term gains. Once all gains are eliminated, you can deduct up to $3,000 in net capital losses against ordinary income (wages, self-employment income, interest, dividends, etc.) in a single tax year. This $3,000 limit is a critical constraint for self-employed investors. If you harvest $10,000 in losses in a particular year but have no capital gains, you can only deduct $3,000 of that loss in year one. The remaining $7,000 carries forward to future years, where the same $3,000 annual deduction applies.

Loss Application Scenario	2025 Tax Deduction	Carryforward Amount
Harvested $8,000 loss; $12,000 gains	$0 (fully offset by gains)	$0
Harvested $10,000 loss; $0 gains	$3,000	$7,000
Harvested $5,000 loss; $2,000 gains	$3,000 (gain offset + ordinary income)	$0

Long-Term vs. Short-Term Capital Losses

The holding period of an investment affects how losses are classified and applied, though the practical impact is minimal for deduction purposes. A long-term capital loss (from securities held more than one year) receives the same treatment as a short-term loss (from securities held one year or less) when offsetting gains or ordinary income. The distinction matters when you have complex scenarios with mixed gain types. For self-employed investors harvesting losses from their personal investment portfolio, most losses will be long-term if you’re not actively trading. Active traders managing business brokerage accounts may realize short-term losses more frequently. Report all capital transactions on Schedule D (Form 1040). The form automatically walks you through proper loss application. Self-employed individuals report capital gains and losses on Schedule D, then transfer the net result to your Form 1040, which ultimately flows to your overall taxable income calculation.

What Are Wash-Sale Rules and How Do They Affect Self-Employed Investors?

The wash-sale rule represents the single most common mistake self-employed investors make when harvesting losses. According to IRS Topic 409, if you sell a security at a loss and then acquire a substantially identical security within a 61-day period (30 days before the sale through 30 days after), the IRS disallows the loss deduction. The disallowed loss is added to your cost basis in the newly purchased security, deferring the tax benefit to a future year when you ultimately sell that security without repurchasing it.

Understanding the 61-Day Window and “Substantially Identical”

The wash-sale period spans from 30 days before a loss sale through 30 days after, totaling a 61-day window. Self-employed investors managing multiple accounts often inadvertently violate this rule by selling a stock at a loss in one account and purchasing it (or similar shares) in another account within the window. The IRS considers purchases across all your accounts, so selling Apple shares at a loss in your personal account and buying them in your business account triggers the rule. What constitutes “substantially identical” is critical. The IRS provides limited explicit guidance, but the general principle is that securities with the same issuer and identical terms are substantially identical. A common mistake: believing that buying a different share class of the same company (e.g., Class A vs. Class B stock) or purchasing options avoids the rule. The IRS has challenged these positions. Buying a mutual fund tracking the same index as a sold ETF can also trigger scrutiny, though the IRS must prove substantial identity.

Common Wash-Sale Pitfalls for Self-Employed Investors

Self-employed professionals often encounter wash-sale violations because they maintain active investment strategies across multiple accounts. Example: You harvest a $5,000 loss by selling a position in your personal taxable brokerage account on December 15th. On December 28th, during portfolio rebalancing, your quarterly business account purchases the same investment, intending to restore exposure. Result: wash-sale violation. The $5,000 loss is disallowed; you’ll add it to the cost basis of the newly purchased shares. When you eventually sell those shares (absent further repurchases within 30 days), you’ll realize the full tax benefit. However, you’ve deferred the deduction potentially years into the future. Another common mistake involves automated dividend reinvestment. If you sell a mutual fund at a loss and forget to temporarily disable dividend reinvestment, the fund will repurchase itself at the dividend distribution date, triggering a wash-sale violation.

How Should You Coordinate Tax Loss Harvesting Across Multiple Account Types?

The self-employed investor’s portfolio typically comprises three distinct account types, each with different tax characteristics. Understanding how these accounts interact with tax loss harvesting is essential for optimizing your strategy. A professional tax advisory relationship can help you coordinate these accounts throughout the year.

Business Brokerage Accounts (Taxable)

Most self-employed professionals maintain at least one taxable business investment account. This account often receives quarterly distributions of business profits, retains retained earnings, or holds business-related investments. Importantly, this is a taxable account—capital gains and losses flow to your individual tax return. Tax loss harvesting in business accounts is highly effective because losses directly reduce your business-related income, which often carries both income tax and 15.3% self-employment tax rates. A $5,000 capital loss harvested from a business account can save $1,000+ in combined federal income and SE tax (at a 20%+ marginal rate). The wash-sale rule applies to business accounts just like personal accounts—purchasing substantially identical securities within 30 days before or after loss realization triggers the rule, regardless of which account holds the replacement.

Personal Taxable Brokerage Accounts

Personal taxable investment accounts are separate from business accounts and subject to the same capital gains and loss rules. Harvesting losses in personal accounts is similarly valuable, though the tax rates may differ. If your marginal income tax rate is 24% but you don’t pay self-employment tax on investment income, a harvested loss saves approximately 24% per dollar (plus potential state income tax). The personal account still participates fully in the wash-sale rules. If you harvest a loss in your personal account by selling a stock, and your business account purchases the same stock within 30 days, the wash-sale rule applies. This cross-account coordination challenge makes spreadsheet tracking essential for self-employed investors managing multiple accounts.

Retirement Accounts (Tax-Deferred: SEP-IRA, Solo 401k)

Self-employed professionals often maintain tax-deferred retirement accounts such as SEP-IRAs or Solo 401(k)s. Inside these accounts, capital gains and losses are NOT reportable to the IRS; they don’t reduce your current-year taxable income. Because the entire account grows tax-deferred, gains and losses within the account are irrelevant from a current-year tax perspective. This creates a critical distinction: you should never harvest losses in retirement accounts because losses provide zero tax benefit. Instead, maintain a “buy and hold” approach in retirement accounts. If you’ve harvested a loss in a taxable account and wish to maintain investment exposure (to avoid reducing your portfolio), you can purchase the same or substantially similar securities in your retirement account. Since retirement accounts are outside the wash-sale rule’s scope (the rule applies to gains and losses reported on your tax return, not unrealized gains/losses inside tax-deferred vehicles), this strategy is permitted. For example: Sell Apple shares at a $5,000 loss in your business taxable account on December 15th. Immediately purchase Apple shares in your Solo 401(k) to maintain portfolio exposure and diversification. The $5,000 loss in the taxable account is harvestable (subject to wash-sale restrictions with your personal account, but not your retirement account). The Apple shares in your Solo 401(k) grow tax-deferred with no current-year tax impact.

Account Type	Tax Loss Harvesting Appropriate?	Wash-Sale Rule Applies?
Business Taxable Brokerage	Yes (highly recommended)	Yes
Personal Taxable Brokerage	Yes (recommended)	Yes
SEP-IRA (Tax-Deferred)	No (no current-year benefit)	No
Solo 401(k) (Tax-Deferred)	No (no current-year benefit)	No

What Entity-Specific Strategies Apply to Your Business Structure?

Your business structure fundamentally affects how capital losses appear on your tax return and how you coordinate them with business expenses and deductions. Understanding your specific entity’s rules ensures you’re maximizing the tax benefit of harvested losses.

Sole Proprietors and Schedule C Filers

As a sole proprietor, you report business income and losses on Schedule C (Form 1040). Capital gains and losses from your business investments appear on Schedule D (Form 1040), not Schedule C. This distinction is important: business operating income and capital investment income are reported separately. However, they both ultimately flow to your individual Form 1040, where the cumulative income determines your tax liability. For tax loss harvesting purposes, harvesting a loss from your business investment account produces a capital loss on Schedule D. This loss first offsets any capital gains you’ve realized in other investments. If losses exceed gains, up to $3,000 can reduce ordinary income (including your Schedule C net profit). Any remaining loss carries forward. As a sole proprietor, you have no separate entity-level capital loss limitation—the $3,000 annual cap applies to your individual return. A self-employed consultant earning $120,000 from business operations and harvesting $10,000 in investment losses can deduct $3,000 against the combined business and investment income, reducing taxable income to $127,000 (before other standard/itemized deductions). The remaining $7,000 loss carries forward.

Single-Member LLCs Taxed as Sole Proprietors

Many self-employed professionals operate as single-member LLCs, which by default are taxed as sole proprietorships. From a tax perspective, this structure is identical to a sole proprietor scenario for capital loss purposes. Business income and capital gains/losses are reported identically. The LLC structure provides legal liability protection but doesn’t change the underlying capital loss harvesting mechanics. If you’ve established a business LLC for liability purposes but maintain investment accounts in the LLC’s name, harvesting losses in those accounts operates under sole proprietor rules. The capital losses still flow to your individual Form 1040, subject to the same $3,000 annual deduction limit.

S Corporations and Pass-Through Entity Capital Losses

Self-employed professionals operating as S Corporations face different capital loss treatment. An S Corp is a “pass-through” entity, meaning corporate-level capital gains and losses pass through to shareholders’ individual tax returns. If your S Corp maintains business investment accounts and harvests losses, those losses appear on your Form 1120-S (S Corp tax return), then flow to your Schedule K-1 (Shareholder’s Share of Income). From there, they transfer to your individual Form 1040. The practical mechanics are similar to a sole proprietor scenario—losses ultimately reduce your individual taxable income. However, S Corps introduce operational complexity. Capital losses occurring at the corporate level are «corporate» capital losses, distinct from your personal capital gains or losses. If your S Corp harvests $5,000 in losses but realizes $2,000 in capital gains, the S Corp’s net capital loss of $3,000 passes through to you on your K-1. You then apply this $3,000 against your personal capital gains. If you have no personal capital gains, you can deduct $3,000 against ordinary income, with any excess carrying forward on your personal return, not your S Corp return. For many S Corp professionals, the complexity of tracking capital losses at both the corporate and individual level makes professional accounting support essential. A specialized entity structuring review can clarify optimal capital loss harvesting strategies for your specific S Corp setup.

When and How Should You Execute Tax Loss Harvesting?

Successful tax loss harvesting requires disciplined execution and meticulous record-keeping. Most self-employed professionals maximize the benefit by reviewing their investment portfolios quarterly and executing harvests opportunistically throughout the year, with intensified activity in November and December.

Year-End Tax Loss Harvesting Calendar

• September-October: Begin quarterly portfolio review. Identify positions with unrealized losses. Evaluate which losses have tax planning value. Consider your year-to-date capital gains from other investments.
• November: Execute preliminary harvests. Analyze whether to harvest business account losses, personal account losses, or both. Consider wash-sale implications. Document all transactions in a dedicated tax planning spreadsheet.
• Early December: Harvest remaining eligible losses. Confirm you have not violated wash-sale rules with November purchases. Lock in losses by settlement date before December 31st (T+2 settlement, so trades must execute by December 29th).
• December 30-31: Final review. Verify all loss positions have settled. Confirm wash-sale compliance. Calculate total harvested losses and their projected tax impact.
• January 1+: Begin 30-day post-harvest period. Document that no substantially identical securities are repurchased during this window. Set calendar reminders for January 30+ to safely resume positions.

Step-by-Step Execution Framework

Follow this disciplined process to execute tax loss harvesting safely:

• Step 1 – Identify Losses: Review all taxable investment accounts. List positions with unrealized losses exceeding $500 (to focus on material tax benefits). Note purchase price, current price, and loss magnitude.
• Step 2 – Calculate Tax Impact: For each loss, multiply by your marginal tax rate (typically 22-35% for self-employed, including self-employment tax). Prioritize harvests delivering the highest dollar tax benefit.
• Step 3 – Check for Wash-Sale Violations: For each position you plan to harvest, verify whether you’ve purchased substantially identical securities in any account within the past 30 days. Verify your spreadsheet history. Ask: “Did I buy this same stock, fund, or ETF anywhere in the past month?”
• Step 4 – Plan Replacements: After harvesting, identify alternative investments maintaining your portfolio’s desired allocation. These alternatives must be “not substantially identical” to avoid wash-sale violations. Example: Sell an S&P 500 index fund, replace with a total-market index fund (different indexes trigger lower scrutiny, though both track broad equity markets).
• Step 5 – Execute Trades: Sell positions at a loss. Immediately (or within days) purchase the alternative investment to maintain desired portfolio exposure. Document the trade dates, amounts, and tax lots sold.
• Step 6 – Record in Tax Planning Spreadsheet: Create an entry capturing: original position, sale date, loss amount, replacement position, replacement purchase date, and planned 30-day wash-sale reminder date.
• Step 7 – Set Reminder for 30+ Days Post-Sale: Mark your calendar for 31 days after each loss realization. Confirm no substantially identical repurchases occurred during the 30-day window. Only after this date is it safe to repurchase the original position.

What Are the Most Common Tax Loss Harvesting Mistakes?

Even well-intentioned self-employed investors often make mistakes that negate or reduce the benefits of tax loss harvesting. Understanding these pitfalls helps you avoid costly errors.

Mistake #1: Violating the Wash-Sale Rule

This is the most frequent violation. You harvest a loss, then repurchase the same or substantially identical security within 30 days. The entire loss is disallowed, and you add it to the new purchase’s cost basis. Example: On December 15, 2025, you sell Apple stock at a $3,000 loss in your personal account. On December 20, 2025, you automatically reinvest a dividend from Apple stock held in your Solo 401(k) into additional Apple shares. Have you violated the wash-sale rule? Technically, the 401(k) investment doesn’t trigger wash-sale (because 401(k)s are outside the rule’s scope), but if you purchased Apple in your business account during the 30-day window, that would violate the rule. Many investors lose this nuance. Solution: Maintain a comprehensive spreadsheet tracking all harvest sales and their corresponding 30-day post-sale periods. Flag any accounts for “no substantially identical purchases” during these windows.

Mistake #2: Harvesting Losses in Retirement Accounts

A lesser-known but equally costly mistake: harvesting losses inside tax-deferred accounts like SEP-IRAs or Solo 401(k)s. Since these accounts grow tax-deferred with no annual gain/loss reporting, realized losses provide zero current-year tax benefit. The loss is lost forever (from a tax perspective) unless you liquidate the account. A self-employed contractor harvests a $5,000 loss inside a Solo 401(k) thinking it reduces her 2025 tax liability. It doesn’t. The loss simply reduces the account’s value but never appears on her tax return. She’s given up the opportunity to harvest that loss in a taxable account where it would have saved $1,000+ in taxes. Solution: Never harvest losses in retirement accounts. Maintain “buy and hold” strategies in these accounts. If you want to harvest losses and maintain exposure, harvest in taxable accounts and repurchase in retirement accounts (assuming no wash-sale concerns—which don’t apply to retirement accounts anyway).

Mistake #3: Inadequate Documentation and Record-Keeping

The IRS may challenge harvested losses during an audit. Without clear documentation, you risk the entire deduction being disallowed. Critical records include: sale confirmation documents showing the date, quantity, and loss amount; purchase confirmation documents for replacement securities; and a written log explaining the harvest strategy and wash-sale compliance measures taken. Many self-employed investors rely solely on their broker’s tax reports without maintaining supplementary documentation. If an audit occurs, the broker’s report alone may be insufficient to defend your position. Solution: Create a dedicated spreadsheet or document titled “Tax Loss Harvesting Log – [Year]”. Entries should include: position name, original cost, sale date, sale price, loss amount, replacement security name, replacement purchase date, 30-day wash-sale window end date, and confirmation notes. Print or export this document for your tax files.

Mistake #4: Neglecting Cross-Account Coordination

Self-employed professionals managing multiple accounts often harvest in one account without checking activity in other accounts. You harvest a loss in your personal account but forget about scheduled contributions or purchases in your business account or retirement account. If those contributions happen to include the same security, you’ve inadvertently triggered a wash-sale violation. The automated nature of some account contributions (monthly contributions to a robo-advisor account, quarterly dividend reinvestments, employer match deposits) makes this mistake easy to make. Solution: Consolidate all account information into a single master tax planning spreadsheet. Before executing any harvest, scan all three account types (business taxable, personal taxable, retirement) for recent purchases and 30-day forward activity. Coordinate timing so that no substantially identical securities are purchased across any account during the relevant windows.

Uncle Kam in Action: Freelance Consultant Saves $8,400 Through Strategic Tax Loss Harvesting

Client Snapshot: A self-employed marketing consultant specializing in digital strategy.

Financial Profile: Annual net business income of $180,000. Maintains personal brokerage account with $350,000 in investments. Also maintains a Solo 401(k) with $200,000 in retirement savings.

The Challenge: The consultant had realized $18,000 in capital gains from selling appreciated tech stocks. She was facing $3,600 in additional federal income taxes on these gains (at a 20% long-term capital gains rate). Additionally, she had a diversified portfolio containing several underperforming positions—a struggling technology fund down 12%, a regional bank ETF down 8%, and a bond fund down 3% from purchase price. She recognized these were underwater but didn’t realize she could strategically harvest these losses to offset her capital gains. Her previous tax advisor had never discussed tax loss harvesting, focusing only on documenting business expenses and estimated quarterly payments.

The Uncle Kam Solution: We conducted a comprehensive portfolio review and tax optimization analysis. We identified $24,000 in unrealized losses across her three underperforming positions. We developed a coordinated harvesting strategy: First, we harvested $18,000 in losses from her two largest underwater positions (the tech fund and regional bank ETF) in November 2025, completely eliminating her $18,000 capital gain. Second, we identified alternative investments maintaining her desired portfolio allocation—replacing the underperforming tech fund with a diversified growth ETF and the regional bank ETF with a broader financial sector index fund. These alternatives reduced wash-sale violation risk while maintaining sector exposure. Third, we documented the entire strategy in a formal tax planning memo, capturing sale dates, purchase dates, gain/loss calculations, and wash-sale compliance confirmations. We also harvested an additional $6,000 from the bond fund position, exceeding her capital gain offset and generating a net capital loss. This excess loss was documented for carryforward deduction.

The Results:

• Tax Savings (2025): By harvesting $24,000 in losses and offsetting her $18,000 capital gain, she eliminated tax on the gains ($3,600 saved at 20% capital gains rate). Additionally, the $6,000 in excess losses allowed a $3,000 ordinary income deduction ($900 additional savings at her combined 30% marginal rate including self-employment tax). Total 2025 tax savings: $4,500.
• Forward Carryforward Benefit: The remaining $3,000 in excess harvested losses carry forward to future years, each generating $900 in tax deductions (at her 30% marginal rate), totaling $2,700 in projected future tax savings.
• Investment Reposition: Her portfolio was rebalanced with higher-quality, diversified alternatives, improving long-term growth potential.
• Investment: The consultant invested $2,500 for comprehensive tax loss harvesting strategy development and execution support from our team.
• Return on Investment (ROI): First-year ROI of 3.4x ($4,500 savings ÷ $2,500 investment = 3.4x). Over the multi-year carryforward period, total ROI approaches 5x, making this among the most efficient tax strategies available.

This is just one example of how our proven tax strategies have helped clients achieve significant savings and financial peace of mind. Most self-employed professionals leave thousands on the table annually by not implementing coordinated tax loss harvesting strategies.

Next Steps

1. Review your current investment portfolio across all accounts (business, personal, retirement). Identify positions down more than 5% from purchase price.
2. Calculate your year-to-date capital gains. Determine how much harvesting could reduce these gains or provide ordinary income deductions.
3. Create a spreadsheet documenting harvested positions, sale dates, and 30-day wash-sale compliance windows. Set calendar reminders for 31 days post-sale.
4. Consult with a professional tax advisor to coordinate tax loss harvesting with your broader tax planning strategy, especially if you operate as an S Corp or multi-entity structure.
5. Execute harvests before December 31, 2025, ensuring trades settle before year-end (trade by December 29 for T+2 settlement).

Frequently Asked Questions

Can I harvest losses in my Solo 401(k)?

No. Losses realized inside your Solo 401(k) don’t reduce your 2025 tax liability. The entire account grows tax-deferred, and gains/losses don’t appear on your tax return. Instead, maintain a buy-and-hold approach in retirement accounts. If you want to harvest losses and maintain investment exposure, harvest in your taxable account and repurchase in your Solo 401(k) (which isn’t subject to wash-sale rules).

Does the wash-sale rule apply to my spouse’s accounts?

Yes. If you’re married and file a joint return, the wash-sale rule applies to purchases made by both you and your spouse across all accounts held either individually or jointly. A couple harvesting losses must coordinate activity across all four accounts (husband’s personal, wife’s personal, shared business account, and any joint brokerage account).

What if I realize capital losses but have no capital gains to offset?

You can deduct up to $3,000 in net capital losses against your ordinary income in the current year. Any amount exceeding $3,000 carries forward indefinitely to future years, subject to the same $3,000 annual limit. Example: If you harvest $10,000 in losses with no gains, you deduct $3,000 in year one (saving approximately $900 at a 30% marginal rate). The remaining $7,000 carries forward, allowing $3,000 deductions in years two and three, with $1,000 remaining for year four.

Can I buy a similar fund instead of the same fund to avoid wash-sale?

Maybe. If you sell an S&P 500 index fund at a loss and purchase a total-market index fund (different index), the IRS must prove substantial identity. Since the indexes are different and composition varies, courts have generally been more lenient. However, if you sell one large-cap growth fund and immediately buy an almost-identical large-cap growth fund, the IRS will likely challenge it as substantially identical. Safer approach: Replace with funds tracking different asset classes, sectors, or geographies. Example: Sell a domestic stock fund, replace with an international stock fund.

How does tax loss harvesting interact with Alternative Minimum Tax (AMT)?

Capital losses are allowed deductions for both regular tax and AMT calculations. Harvesting to reduce ordinary income by $3,000 reduces your income for both tax systems. In rare cases where harvesting pushes you into AMT territory, the benefit may be partially offset. High-income self-employed professionals ($180,000+) should discuss potential AMT implications with a tax advisor before executing large harvests.

What documentation should I keep for harvested losses?

Maintain: (1) Trade confirmations showing sale date, quantity, and proceeds; (2) Original purchase confirmations showing cost basis; (3) A spreadsheet documenting each harvest with dates and loss amounts; (4) Confirmation that no substantially identical purchases occurred within the 61-day wash-sale window; (5) Any written tax planning memos or advisor correspondence explaining the strategy. Retain these records for at least seven years (IRS statute of limitations for tax disputes).

Can I harvest losses and still own the same investment?

Only if you wait 31+ days after the loss harvest before repurchasing. Or, you can purchase substantially different investments immediately (reducing wash-sale risk, though the IRS may still challenge). Many investors harvest losses in taxable accounts then immediately repurchase in tax-deferred retirement accounts (which aren’t subject to wash-sale rules). This maintains exposure while harvesting the loss.

Should I harvest losses every year even if I have no capital gains?

Yes, if you have unrealized losses exceeding $3,000. Harvesting and using $3,000 against ordinary income provides immediate tax savings (approximately $600-$900 depending on your tax rate). Carrying forward unused losses indefinitely forgoes the time value of this deduction—money saved today is worth more than money saved later. Harvest consistently to maximize the deduction benefit.

Related Resources

• Complete Self-Employed Tax Strategies Guide
• Comprehensive Tax Strategy Solutions for Freelancers
• Entity Structuring for Self-Employed Professionals
• Year-Round Tax Planning and Advisory Services
• IRS Publication 550: Investment Income and Expenses (Official Guide)

Last updated: November, 2025

This information is current as of November 20, 2025. Tax laws change frequently. Verify updates with the IRS website if reading this content later.