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Question
If I lose 50k in my personal brokerage account trading stocks but make 300k in profits with my LLC Company in the same year, will the 50k be deducted from the 300k profits. Will my total capital gains for the year be 250k?
Answer

Great question! Unfortunately, it’s not that easy.

There are three basic categories of income — passive, active, and portfolio. All three are treated a little differently for tax purposes, and the rules for one generally can’t be applied to one another.

Your $50,000 in capital losses can’t reduce your $300,000 in business profits, because they belong in different categories of income.

At most, the IRS allows taxpayers to apply $3,000 of capital losses to active income every year. So your taxable business income would be $297,000.

Even though your capital loss can’t be fully utilized in the current year, it can be rolled over every year and applied to future portfolio income, with up to $3,000 eligible to offset ordinary income every year.

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Sarah York, EA

Sarah is an Enrolled Agent with the IRS and has 6 years of tax and accounting experience. She's an avid hiker, animal lover, and self-proclaimed chocolate connoisseur.

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