A worked example

The losses that outlived the income

Sam, 52, single, spent three years running a venture of their own at a heavy annual loss, funded out of savings, and stopped working when it ended. $900,000 in pre-tax accounts, $100,000 in a Roth, $1,200,000 in a brokerage account, spending $90,000 a year.

“The business is over and the losses were bigger than anything I earned. Is there anything left to do with them, or did they die with it?”

What the projection shows

Stopping work turns off most of the tax bill. Lifetime tax in present value is $53,372, and the first four years owe no federal tax at all. What the year table doesn't say outright is what's left over afterward. A loss under §172 never expires and can offset any kind of income, but there's no income left to offset, so the plan ends still carrying losses it never uses, while $900,000 of pre-tax money waits to be taxed as ordinary income whenever it comes out. The deduction and the tax bill are sitting in the same household and nothing brings them together. A conversion in the empty years would use one against the other, and nothing in this plan asks for one.