4 Tax-Smart Investment Moves Before Year End
As 2026 comes to a close, many investors are reviewing their brokerage accounts, checking annual performance, and preparing for another year of investing.
However, reviewing investment returns is only part of the process. A year-end portfolio review should also include a careful look at the potential tax impact of your gains, losses, charitable contributions, and future investment decisions.
While taxes should never be the only reason you buy or sell an investment, strategic planning before December 31 can help you reduce unnecessary tax exposure and make more informed financial decisions.
Here are four tax-smart investment moves to consider before the end of 2026.
1. Consider Tax-Loss Harvesting—and Strategic Gain Harvesting
One of the most useful year-end investment strategies is reviewing your realized capital gains and losses.
If you sold investments during the year and generated capital gains, you may be able to reduce your taxable gain by selling other investments that have declined in value. This strategy is commonly known as tax-loss harvesting.
How Tax-Loss Harvesting Works
Suppose you realized a $20,000 capital gain from selling a successful investment. You also own another investment that has declined by $8,000.
If you sell the investment with the loss, that $8,000 capital loss may offset part of your $20,000 gain. This can reduce the amount of capital gain subject to tax.
Tax-loss harvesting may be especially useful when:
- You have realized significant capital gains during the year
- Certain investments no longer fit your portfolio strategy
- You want to rebalance your investments
- You are looking for ways to reduce your current-year tax liability
What If You Already Have Capital Losses?
If you are already sitting on a net capital loss, you may have another opportunity.
You could sell appreciated investments and use your existing losses to offset those gains. In some cases, this allows you to reposition your portfolio without creating an additional current-year capital gains tax liability.
Alternatively, you may choose to carry the losses forward.
Generally, individuals may use up to $3,000 of net capital losses to offset ordinary income each year, subject to applicable rules. Any remaining losses may generally be carried forward to future tax years.
Because capital gains and losses can be complex, it is important to review your entire investment portfolio before making a decision.
2. Be Careful of the Wash Sale Rule
Tax-loss harvesting can be valuable, but investors must be careful not to trigger the IRS wash sale rule.
The wash sale rule generally applies when you sell a security at a loss and purchase the same or a substantially identical security within the 30-day period before or after the sale.
Why the Wash Sale Rule Matters
For example, suppose you sell a stock at a $5,000 loss on December 15, hoping to claim the loss on your tax return.
If you purchase the same stock again shortly afterward, the loss may be disallowed for the current year. Instead, the disallowed loss is generally added to the cost basis of the replacement shares.
This means you may not receive the immediate tax benefit you expected.
How to Avoid a Wash Sale
To help avoid wash sale problems, investors may consider:
- Waiting at least 31 days before repurchasing the same security
- Purchasing a different investment that is not substantially identical
- Using a similar but different exchange-traded fund when rebalancing
- Reviewing purchases made across taxable accounts and, where applicable, retirement accounts
- Coordinating trades with a tax professional before executing them
For example, an investor may replace one technology-focused ETF with another fund that has a different underlying portfolio rather than immediately buying back the exact same ETF.
The key is to avoid assuming that two investments are different enough for tax purposes without reviewing the facts carefully.
3. Time Investment Sales Around Your Tax Bracket
The timing of an investment sale can affect the amount of tax you owe.
If you own a highly appreciated stock, deciding whether to sell in December 2026 or January 2027 may depend on your expected income in both years.
When Waiting Until 2027 May Help
Delaying a sale until January 2027 may make sense if you expect your taxable income to be lower next year.
This could happen if:
- You are retiring at the end of 2026
- Your business income is expected to decline
- You are planning to work fewer hours
- You expect fewer bonuses or other income
- You anticipate a temporary reduction in taxable income
A lower-income year may place you in a more favorable capital gains tax bracket, depending on your filing status and other income.
When Selling in 2026 May Be Better
Selling before the end of 2026 may be worth considering if you expect a significant increase in income during 2027.
For example, you may be expecting:
- The sale of a business
- A large bonus
- A major investment distribution
- A significant increase in business profits
- Another financial windfall
In that situation, selling in 2026 could allow you to recognize the gain before your income increases.
Review More Than Just the Sale Date
Before deciding when to sell, review:
- Your expected taxable income for both years
- The investment’s cost basis
- Whether the gain is short-term or long-term
- Your expected filing status
- Other realized capital gains and losses
- Potential state taxes
- Your broader investment and retirement goals
Tax planning should support your investment strategy—not replace it.
4. Consider Donating Appreciated Stock Instead of Cash
If you plan to make charitable contributions before year-end, donating appreciated stock may be more tax-efficient than selling the stock and donating cash.
This strategy may provide two potential tax benefits for eligible taxpayers who itemize deductions.
Potential Benefit One: Avoid Capital Gains on Appreciation
When you donate eligible long-term appreciated stock directly to a qualified charity, you generally do not sell the investment yourself.
As a result, you may avoid recognizing the capital gain that would have occurred if you had sold the stock and donated the proceeds.
For example, suppose you purchased stock for $5,000 and it is now worth $20,000.
If you sell the stock, you may recognize a $15,000 capital gain. However, if you donate the eligible appreciated stock directly to a qualified charity, you may be able to avoid recognizing that gain, subject to applicable rules.
Potential Benefit Two: Potential Charitable Deduction
If you itemize deductions and meet the applicable requirements, you may be able to claim a charitable deduction based on the stock’s fair market value on the date of the donation.
This means the donation may provide both:
- Potentially avoiding capital gains tax on the appreciation
- A potential charitable deduction for the donated property
The deduction is subject to limitations, substantiation requirements, holding-period rules, and other IRS restrictions.
Do Not Donate Investments That Have Declined in Value
Appreciated stock and depreciated stock should generally be handled differently.
If a stock has lost value, donating it directly may prevent you from claiming the investment loss in the most effective way.
Instead, you may consider:
- Selling the investment to realize the capital loss
- Claiming the loss subject to applicable tax rules
- Donating the cash proceeds to the charity
Always review this strategy with your tax advisor before completing the transaction.
Example Scenario: A Year-End Investment Review
Suppose an investor has the following positions before the end of 2026:
- $25,000 in realized capital gains
- $10,000 in unrealized losses from another investment
- A highly appreciated stock with a $40,000 long-term gain
- A plan to donate $15,000 to charity
- Expected lower taxable income in 2027 due to retirement
A year-end tax review could help the investor evaluate several options:
- Sell some of the losing investment to offset realized gains
- Avoid repurchasing the same security too soon
- Consider whether to sell the appreciated stock in 2026 or wait until 2027
- Donate appreciated stock directly instead of cash
- Review whether itemizing deductions makes sense
The best strategy depends on the investor’s complete financial picture. A move that reduces taxes today may not always be the best long-term investment decision.
Why Planning Matters
Waiting until December 31 can create unnecessary pressure and may leave insufficient time to complete trades, transfer securities, or obtain accurate tax information.
Before making significant year-end investment decisions, consider reviewing:
- Realized capital gains and losses
- Unrealized investment gains and losses
- Cost basis information
- Short-term versus long-term holding periods
- Potential wash sale issues
- Expected income for 2026 and 2027
- Charitable giving plans
- Retirement and estate planning goals
- State and federal tax implications
It is also important to remember that investment transactions may take time to settle. Starting the review early gives you more time to coordinate with your financial advisor, brokerage firm, and tax professional.
Conclusion
A year-end investment review is about more than measuring portfolio performance. It is an opportunity to evaluate how your investment decisions may affect your tax liability and long-term financial goals.
Tax-loss harvesting, careful wash sale planning, strategic timing of investment sales, and donating appreciated stock may all create valuable opportunities when used correctly.
However, tax considerations should always be balanced with your investment objectives, risk tolerance, cash-flow needs, and overall wealth strategy.
Before making significant portfolio changes, contact Guerrero CPA at 210-490-7100. Our team can help review your capital gains and losses, evaluate potential tax brackets, identify wash sale concerns, and coordinate your investment decisions with your broader tax and wealth-planning goals.