How you manage gains and losses in your portfolio before December 31 can make a meaningful difference on your tax return. The tax code treats short-term gains, long-term gains, dividends, losses, and charitable transfers very differently, which creates opportunities for investors who review their portfolios before year-end. Below are several practical moves to help you reduce your 2025 tax exposure while staying aligned with your long-term investment strategy.

Year-end investment planning can reduce taxes by offsetting gains with losses, using lower tax brackets within the family, and donating appreciated stock instead of cash. Reviewing your portfolio before December 31 helps investors lower short-term gain taxes and maximize deductions.

1. Understand How Your Gains Are Taxed

Not all investment profits are taxed the same way, which is why timing matters.
• Short-term gains (investments held one year or less) are taxed at ordinary income rates, potentially as high as 40.8 percent with the net investment income tax included.
• Long-term gains qualify for lower rates, ranging from 0 to 23.8 percent depending on your taxable income.
• Qualified dividends follow the same long-term rate schedule.

For many investors, simply avoiding short-term gains when possible reduces taxes immediately.

2. Offset Gains With Losses Before December 31

Tax-loss harvesting allows you to use losses to offset taxable gains in your portfolio.
This matters most when you have:
• high-taxed short-term gains
• losses from positions you plan to exit anyway
• capital gains pushing your taxable income higher

You can also deduct up to $3,000 of net capital losses against ordinary income, with unused losses carried forward to future years.

Goal: Use lower-taxed losses to neutralize higher-taxed gains.

3. Avoid Wash-Sale Issues

If you sell an investment at a loss and buy the same or “substantially identical” investment within 30 days before or after the sale, the IRS will disallow your loss.

To preserve the loss:
• wait 31 days before repurchasing, or
• buy an alternative fund or stock that offers similar exposure without triggering the rule.

This is one of the most common mistakes investors make during year-end planning.

4. Use Lower Tax Brackets Within the Family

If you financially support parents or adult children who are not subject to the kiddie tax, consider giving them appreciated stock instead of cash.

Why it works:
• They sell the stock.
• Their lower tax bracket applies to the gain.
• More of the family’s total wealth stays in the household instead of going to taxes.

The 2025 long-term capital gains brackets are based on taxable income, with 0 percent rates extending up to $48,350 for individuals and $96,700 for married couples filing jointly.

This is a simple but powerful family tax strategy.

5. Donate Appreciated Stock Instead of Cash

If you plan to donate before year-end, appreciated stock is often more tax-efficient:
• You deduct the fair market value of the donated stock.
• You avoid paying capital gains tax on the appreciation.

Example (simplified):
Stock bought for $1,000 is now worth $11,000. By donating it:
• You deduct $11,000.
• You avoid tax on the $10,000 gain.

Be aware of:
• the 30 percent of AGI limit on appreciated stock donations, with a five-year carryforward for amounts exceeding that limit.
• the need to itemize to claim these deductions.

6. Do Not Donate Investments With Losses

If a stock has declined, donating it is usually a mistake.

When you donate a loss-position stock:
• You only deduct the current market value.
• You permanently forfeit the loss deduction.

Instead:

Sell the stock and recognize the loss.
Donate the cash proceeds to the charity.

This preserves both the loss deduction and the charitable contribution.

Year-End Investment Checklist

☑ Review short-term vs. long-term gains
☑ Identify losses you can harvest
☑ Watch for wash-sale windows
☑ Consider gifting stock to relatives in lower tax brackets
☑ Donate appreciated stock, not cash
☑ Sell loss stocks before donating
☑ Execute trades well before December 31 (allow time for settlement)

If you want help reviewing your 2025 gains and losses, Brothers Tax can model the impact of each year-end portfolio strategy. Schedule a review with us.