Year-End Tax-Loss Harvesting: Pairing Gains and Losses for Tax Alpha

Markets move fast—and sometimes not in the direction you hoped. But here’s the upside: volatility creates opportunity. If you’re holding investments that dipped this year, you may be able to turn those losses into something useful: real tax savings.

This strategy, known as tax-loss harvesting, can help you reduce your tax bill, offset gains, and enhance your long-term performance when executed intentionally. At its core, it’s about one thing—turning portfolio setbacks into a strategic advantage.

At Andrea Ward CPA, we help investors and families identify where losses can be harvested, how gains should be paired, and when a timing move will create tax alpha versus unnecessary disruption. Below is your high-impact guide to making year-end volatility work in your favor.

Start With the “Why”: Tax Alpha, Not Just Tax Savings

Tax-loss harvesting isn’t a gimmick—it’s a disciplined portfolio move.

When done correctly, it helps you:

• Lower taxes owed on capital gains
  
• Reduce taxable income (up to IRS limits)
  
• Reposition your portfolio without triggering unnecessary taxes.
  
• Lock in strategic opportunities during a volatile year
  
• Improve after-tax returns over time



This isn’t about reacting emotionally to red numbers. It’s about using the tax code intentionally.

How It Works: The Core Mechanics

When you sell investments at a loss, you can use those losses to offset:

1. Capital Gains

• Short-term gains
  Taxed as ordinary income (highest rates)
• Long-term gains
  Taxed at preferential rates

By pairing losses with gains, you minimize what you owe.

2. Up to $3,000 of Ordinary Income

If your losses exceed your gains, you can use up to $3,000 to reduce taxable income each year.

3. Future Gains

Unused losses carry forward indefinitely—essentially a “future tax asset.”

This is where high earners build long-term tax alpha.

Identify the Right Losses to Harvest

Not every losing investment should be sold. The question isn’t “What is down?”—it’s “What should I reposition without hurting my long-term strategy?”

Good candidates:

• Investments with losses and no strong thesis for recovery
  
• Positions you want to rebalance anyway
  
• Overweight areas in need of trimming
  
• Tax-inefficient holdings that should shift to other accounts

Bad candidates:

• Assets that will trigger wash-sale rules
  
• Positions with strong near-term rebound potential
  
• Core long-term holdings you’d disrupt by selling



The right loss isn’t always the biggest—it’s the smartest.

Avoid the Wash-Sale Rule (The Most Common Mistake)

You can’t sell a security for a loss and buy a “substantially identical” one within 30 days before or after the sale. If you do, the IRS disallows the loss.

Avoid wash sales by:

• Swapping into similar (not identical) investments
  
• Using alternate ETFs with different indexes
  
• Temporarily reallocating to maintain market exposure.
  
• Reviewing automatic dividend reinvestments

A disciplined approach keeps your tax savings intact.

Pair Gains and Losses Strategically

This is where smart planning beats simple execution.

Short-Term Losses → Offset Short-Term Gains

Short-term gains are taxed at the highest rates.
Using short-term losses here produces maximum savings.

Long-Term Losses → Offset Long-Term Gains

Long-term gains have lower taxes but can still add up.
A tax-aligned pairing prevents unnecessary drag.

Blend Your Pairs for Maximum Tax Alpha

In years where you have both types of gains, you can layer strategies to reduce your total tax exposure.

This is where CPA-level planning makes a meaningful difference.

Reinvest With Intention

Loss harvesting is not market timing. It’s tax timing.

Once you sell at a loss, reinvest in something that preserves:

• Market exposure
  
• Your long-term allocation
  
• Your investment philosophy

Example replacements:

• A different ETF in the same asset class
  
• A similar mutual fund tracking a different index
  
• A temporary shift to a broader or narrower strategy



The goal: stay invested while capturing tax benefits.

Look Beyond December: Tax-Loss Harvesting Is a Year-Round Opportunity

Most people check this box in December. But smart investors monitor opportunities all year.

• Mid-year volatility → big harvesting opportunities
• Market corrections → potential long-term tax alpha
• Sector shakeups → strategic repositioning moments



December is the deadline—not the only window.

Coordinate With Your Entire Financial Picture

Tax-loss harvesting works best when aligned with:

• Income planning
  
• Bonus timing
  
• Retirement contributions
  
• Roth conversions
  
• Business or investment sales
  
• Real estate gains

One move affects another. Tax planning works as a system—not in isolation.

Final Thoughts

The smartest giving isn’t reactive — it’s part of a bigger, forward-looking plan. At Andrea Ward CPA, we help clients weave philanthropy into smart tax and financial strategy.



Whether you’re using a Donor-Advised Fund, donating through your business, or leveraging deductions, we make sure every move supports your broader goals — financially and personally.

Bottom line: generosity is good. Strategic generosity is better. Let’s make your giving count where it matters most.
👉 Book your year-end strategy session today.