Q. Can my dividend income be offset with losses on sale of a stock in tax loss harvesting?
A. Simple answer: No.
The more complicated answer:
Capital losses can not be deducted directly from Stock dividends. But, any net capital loss (after deducting any capital gains) is entered on your form 1040 as "negative income" (but no more than -$3000). As, such, it reduces any other income you have before tax is calculated. So, yes, you could say a capital loss effectively reduces the tax on dividends. But, not really. Since "qualified dividends" are taxed at the special long term capital gains (LTCG) tax rate, your capital loss first reduces other income (e.g. wages) before it reduces dividend income.
Capital losses are first applied against capital gains and "capital gains distributions" (often confused with dividends), if you have any (mutual fund owners frequently have capital gains distributions) before reducing other income. You can see these offsets (deductions) on Schedule D. Nowhere, on the forms, is there a direct offset of capital losses from dividends. Capital gains distributions are reported to you in box 2a of form 1099-DIV.
Depending on your total income, you may not want to reduce your (qualified) dividends, because they are taxed at the LTCG tax rate, which can be as little as 0%. For people in the 22% tax bracket, (qualified) dividends are taxed at 15%.
