Tax Loss Selling - Take Capital Losses!
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By The Greek: Economy & Markets:
The final trading day of the year marks investors' last opportunity to take advantage of securities losses for the sake of tax reduction. So, if you can record a net capital loss, you might save yourself a few bucks or even boost your refund come tax tally time.
(Article interests: NYSE: HRB, Nasdaq: INTU, AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)
If you have paper losses on stocks or other securities that qualify as capital assets, and have yet to record a net capital loss of up to $3,000, you should be considering it. After all, why sit on a loss that can create cash flow for you now.
Maybe you love the stock or the sector you're invested in, and you fear selling just when the market or stock might turn around. Well, in that case, you might replace your sold shares with the shares of a similar or replacement firm. For instance, suppose you owned Google (Nasdaq: GOOG) all of last year. In that case, you're sitting on a 55% paper loss as of Wednesday afternoon. Why not record some of that loss now to save yourself tax dough? You can take that loss and distribute it against capital gains, thus avoiding the related tax. If you still have some losses left over, you can also offset your taxable income up to $3,000. If you have even more losses than that, fear not, as you won't lose opportunity. Those extra losses will be put towards offseting gains and income in future years. Heck, this almost makes losses taste good.
"Yeah, but Greek," you're saying, "I love Internet search over the long-term, especially Google." Okay, well, you can buyback GOOG shares after 30 days have passed and the wash sale rule no longer applies. The wash sale rule is in place to prevent people taking advantage of the system by selling off shares for tax purposes, but effectively keeping their holdings by repurchasing the same shares immediately. Basically, if you repurchase the sold shares within 30 days time, you can't take that loss on your taxes.
When you repurchase your Google position in 30 days time, you'll start off with a new and lower cost basis (or purchase price times shares purchased plus commission), assuming the stock has not recovered that ground. Now this might work to raise your long-term capital gains if you plan on holding the stock for a while and it appreciates, but remember the time value of money. Take the cash back now, and worry about future taxes later. There's no guarantee the stock will appreciate anyway, and you'll likely have new losses to counter against it in the future.
"But," you ask, "what if Google recovers in early January because of the "January Effect," or because people like you sold it in November and are now buying it back." Well, the same issues your stock suffers from might also apply to many other stocks, especially close peers. In that case, why not replace Google (or your stock), at least temporarily with shares of Yahoo (Nasdaq: YHOO) (or a similar name). In the Yahoo case, as a bonus, you also get a beaten down stock, whose stubborn CEO is about to take leave. You might get an extra benefit if Yahoo agrees to acquisition after Jerry Yang moves on. At the very least, replacing the shares with a peer should help to limit your risk of missing industry or overall market recovery.
Remember that if you have less losses than gains, the situation is altered some. First you must net your long-term gains against your long-term losses and your short-term gains against your short-term losses. Short-term gains are taxed at a higher rate than long-term, so this comes to play if you have a net gain to report. Please see the IRS file for details on Capital Gains Tax.
Taking a loss on your investments is always a painful experience, but the pain can be eased by using those losses against taxable income on your return. You still have a little time to save some money this season, so why not give yourself a tax break if you can.
Please see our disclosures at the Wall Street Greek website and author bio pages found there.
By The Greek: Economy & Markets:The final trading day of the year marks investors' last opportunity to take advantage of securities losses for the sake of tax reduction. So, if you can record a net capital loss, you might save yourself a few bucks or even boost your refund come tax tally time.
(Article interests: NYSE: HRB, Nasdaq: INTU, AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)
If you have paper losses on stocks or other securities that qualify as capital assets, and have yet to record a net capital loss of up to $3,000, you should be considering it. After all, why sit on a loss that can create cash flow for you now.
Maybe you love the stock or the sector you're invested in, and you fear selling just when the market or stock might turn around. Well, in that case, you might replace your sold shares with the shares of a similar or replacement firm. For instance, suppose you owned Google (Nasdaq: GOOG) all of last year. In that case, you're sitting on a 55% paper loss as of Wednesday afternoon. Why not record some of that loss now to save yourself tax dough? You can take that loss and distribute it against capital gains, thus avoiding the related tax. If you still have some losses left over, you can also offset your taxable income up to $3,000. If you have even more losses than that, fear not, as you won't lose opportunity. Those extra losses will be put towards offseting gains and income in future years. Heck, this almost makes losses taste good.
"Yeah, but Greek," you're saying, "I love Internet search over the long-term, especially Google." Okay, well, you can buyback GOOG shares after 30 days have passed and the wash sale rule no longer applies. The wash sale rule is in place to prevent people taking advantage of the system by selling off shares for tax purposes, but effectively keeping their holdings by repurchasing the same shares immediately. Basically, if you repurchase the sold shares within 30 days time, you can't take that loss on your taxes.
When you repurchase your Google position in 30 days time, you'll start off with a new and lower cost basis (or purchase price times shares purchased plus commission), assuming the stock has not recovered that ground. Now this might work to raise your long-term capital gains if you plan on holding the stock for a while and it appreciates, but remember the time value of money. Take the cash back now, and worry about future taxes later. There's no guarantee the stock will appreciate anyway, and you'll likely have new losses to counter against it in the future.
"But," you ask, "what if Google recovers in early January because of the "January Effect," or because people like you sold it in November and are now buying it back." Well, the same issues your stock suffers from might also apply to many other stocks, especially close peers. In that case, why not replace Google (or your stock), at least temporarily with shares of Yahoo (Nasdaq: YHOO) (or a similar name). In the Yahoo case, as a bonus, you also get a beaten down stock, whose stubborn CEO is about to take leave. You might get an extra benefit if Yahoo agrees to acquisition after Jerry Yang moves on. At the very least, replacing the shares with a peer should help to limit your risk of missing industry or overall market recovery.
Remember that if you have less losses than gains, the situation is altered some. First you must net your long-term gains against your long-term losses and your short-term gains against your short-term losses. Short-term gains are taxed at a higher rate than long-term, so this comes to play if you have a net gain to report. Please see the IRS file for details on Capital Gains Tax.
Taking a loss on your investments is always a painful experience, but the pain can be eased by using those losses against taxable income on your return. You still have a little time to save some money this season, so why not give yourself a tax break if you can.
Please see our disclosures at the Wall Street Greek website and author bio pages found there.
Labels: Educational
posted by The Greek | 3:00 PM
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