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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?

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 a staff writer at Keeper Tax and has her Enrolled Agent license with the IRS. Her work has been featured in Business Insider, Money Under 30, Best Life, GOBankingRates, and Shopify. She has nearly a decade of public accounting experience, and has worked with clients in a wide range of industries, including oil and gas, manufacturing, real estate, wholesale and retail, finance, and ecommerce. Sarah has extensive experience offering strategic tax planning at the state and federal level. During her time in industry, she handled tax returns for C Corps, S corps, partnerships, nonprofits, and sole proprietorships. Sarah is a member of the National Association of Enrolled Agents (NAEA) and maintains her continuing education requirements by completing over 30 hours of tax training every year. In her spare time, she is a devoted cat mom and enjoys hiking, baking, and overwatering her houseplants.

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