Unpack the basics—and the big misses—of capital gains planning.
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Quick Tax Tip
With Art Werner
CPE Today
Many accounting professionals may recall the concept of tax loss harvesting from their very first income tax course. But this seemingly elementary strategy can have powerful implications—and far too many practitioners and clients are overlooking it.
More Art Werner
“Each year, clients walk into offices with their 1099s in hand, showing large capital gains,” Werner explains. “At that point, there’s not much we can do except report what’s already happened. That’s the role of a historian, not an advisor.”
The real value, Werner says, comes from being involved before the end of the tax year. Had clients reached out when those gains occurred, professionals could have explored ways to offset them—namely, by strategically selling loss-generating assets before December 31.
Is there a way to do so while the asset remains in the client’s portfolio?
Yes, but things get tricky with crypto.
Some clients resist selling those underperforming assets, believing they’ll recover in value. Werner’s advice: Remind them that losses aren’t permanent. “As long as they comply with the wash sale rule, they can sell now, capture the loss, and buy back 30 days later. The asset remains in their portfolio, but the tax bill shrinks.”
The conversation gets even more compelling when cryptocurrency enters the picture. Currently, crypto sales that generate losses aren’t subject to the wash sale rule at all. That means clients can sell digital assets like Bitcoin, claim the loss, and repurchase almost immediately—repositioning with little disruption.
“It’s one of those little nuances that can make a big difference for clients with significant capital gains,” Werner notes.
However, there’s still a limitation that professionals must plan around: the longstanding $3,000 cap on capital loss deductions. “That threshold hasn’t changed since the late 1970s—no cost of living adjustment, nothing. So large losses could end up being carried forward for years,” he says.
Ultimately, Werner urges professionals to embrace their role as proactive advisors, not passive record-keepers. By revisiting foundational strategies like tax loss harvesting, they can offer real-time value and help clients navigate the system more effectively.