By: Katie Gomez 

You have just a few days left to legally slash your 2025 tax bill by thousands of dollars while simultaneously positioning your portfolio for 2026’s biggest opportunities. Yet most investors will miss this window entirely because they either don’t understand tax-loss harvesting or procrastinate until December 31st at 4:00 PM, when it’s too late. Tax-loss harvesting, strategically selling losing positions to offset capital gains and reduce your tax burden—happens every December, yet fewer than 30% of retail investors take advantage despite the potential to save $3,000+ annually while upgrading portfolio quality. This isn’t complex hedge fund wizardry; it’s straightforward, completely legal, and actionable by anyone with losing positions in their brokerage account.

The beauty extends beyond immediate tax savings: it forces disciplined portfolio evaluation, eliminates emotional attachment to losers, and creates capital to redeploy into higher-conviction opportunities positioned for 2026 catalysts (i.e., Trump’s tariff implementations, the January Effect, etc.) Whether you’re a beginner learning tax optimization or an experienced investor fine-tuning positions, the five strategic trades below provide a systematic framework for maximizing tax benefits while improving holdings for the year ahead. The clock is ticking, so here’s exactly what to do before January 1st.

The 5 Strategic Trades to Make Before December 31st

Trade #1: Harvest AI Stock Losses (Replace with Quality Tech)

• Sell: Overvalued AI stocks down 40%+ that failed to monetize (unprofitable pure-plays, “AI in name only” companies).
• Replace with Microsoft or NVIDIA after the 30-day wash-sale window (or similar-quality tech that’s not “substantially identical”).
• Benefit: Lock in tax losses while repositioning into AI winners with actual revenue and profitability for 2026.

Trade #2: Dump Chinese Exposure (Reposition to Domestic)

• Sell: Retailers and companies with heavy China supply chain risk (apparel, dollar stores, consumer goods dependent on imports).
• Replace with: Domestic manufacturers after 30 days, or rotate to a different sector (steel, infrastructure) immediately.
• Benefit: Tax loss harvesting plus tariff protection as Trump implements 25-60% levies starting January 20th.

Trade #3: Exit Failed Growth Stocks (Rotate to Dividend Value)

• Sell: Unprofitable tech companies bleeding cash with no path to profitability (high burn rate, deteriorating fundamentals)
• Dividend aristocrats or consumer staples offer stability and income.
• Benefit: Lock in losses while generating reliable dividend income throughout 2026’s volatility.

Trade #4: Clean Out Speculative Losers (Build Cash Position)

• Sell: Meme stocks, crypto miners, SPACs, and other speculative positions that cratered 50-80%
• Use cash for: January Effect, small-cap opportunities, or post-inauguration volatility plays
• Benefit: Maximum tax benefit from the biggest losers while creating dry powder for Q1 2026 opportunities

Trade #5: Rebalance Winners (Take Profits Strategically)

• Trim: Positions up 100%+ by taking partial profits (sell 25-50% of position)
• Offset: Capital gains with harvested losses to minimize or eliminate tax impact
• Benefit: Lock in 2025 gains while maintaining core exposure and using losses to shield gains from taxes

Pro Tip: Execute trades #1-4 (sell losers) now, then wait 31 days before repurchasing similar positions to avoid wash sale violations. Trade #5 (rebalance winners) can be done simultaneously to offset gains with losses.

The Post-New Year’s Playbook

Once you’ve executed your tax-loss harvesting trades before December 31st, the real opportunity begins on January 2nd when the 31-day wash sale window opens for repurchasing quality positions you sold for tax purposes. Mark your calendar for precisely 31 days after each sale to buy back positions you still believe in. For example, if you sold an AI loser on December 20th to harvest the loss, you can repurchase a similar quality AI stock on January 20th without violating wash sale rules. Build a watchlist of tax-loss casualties likely to rebound in January, specifically quality small caps and beaten-down growth stocks that got indiscriminately sold in December’s tax-loss frenzy but possess strong fundamentals. These stocks represent the exact opportunities the January Effect exploits as institutions rebalance portfolios in Q1 and as fresh capital from bonuses and 401(k) contributions floods back into risk assets.

Use Trade Ideas scanner strategies to identify opportunities systematically:

• Filter your own portfolio for positions down more than 20% with no clear recovery catalyst (your harvest candidates).

• Scan the market for high-volume stocks down 40%+ in 2025 with quality fundamentals signaling likely January rebounds.

• Identify replacement plays in similar sectors but different companies to maintain exposure while avoiding wash sale violations.

The psychology of year-end trading makes this strategy emotionally difficult but financially essential—selling losers forces you to confront investment mistakes and admit defeat, triggering the sunk cost fallacy where you irrationally hold losing positions hoping to “break even” rather than accepting the loss and moving forward. Detach from emotional attachment by recognizing that your cost basis is irrelevant to future performance; what matters is whether the stock represents your best opportunity in the future.

Embrace the New Year as an opportunity for a fresh portfolio start: the calendar turning to 2026 provides psychological permission to shed underperformers, harvest tax benefits, and redeploy capital into your highest-conviction ideas positioned for all the market dynamics that await. The traders who systematically execute this strategy will start 2026 with lower tax bills, stronger portfolios, and positions aligned with the year’s biggest catalysts, while competitors remain anchored to 2025’s losers out of stubbornness and emotional attachment.