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Q: What Are “Paper” Profits and Losses—And Why Do They Matter for Taxes?

Here’s the key idea:

“Paper” profits or losses are unrealized—meaning the IRS doesn’t tax them until you actually cash out or sell.

That’s because in the eyes of the tax code, nothing is truly “income” or “loss” until a transaction is finalized. Until then, it’s just numbers on paper.

Common Situations:
• Investments: Stocks, mutual funds, crypto that you still hold? Not taxable yet.
• Real estate: Your home’s value may rise or fall—but gains aren’t taxed until you sell (with some exclusions).
• Business assets: Depreciation and resale value may fluctuate, but gains/losses are only taxed when realized.

Key takeaway: Until you cash out, paper profits and losses are just that—paper. They don’t affect your tax return until they’re realized through a sale or similar transaction.

And if you’ve already sold something at a loss or gain, that’s when it’s time to check the tax impact.

Any questions? I’m Vincent Hicks, a CPA based in the Cambridge–Somerville area. Reach out at vincent@hickscpasolutions.com or (859) 553-0788.