tax question-I am big time annoyed-Acc''ts please help

[smitcompton]

Hi All,

I just did a prelim of my taxes. In late 2006 I invested in the stock market(at the high). I lost money in 2006, 2007. and in 2008, when the market collapsed, I along with many other lost about $40,000. In March of 2009, when the market hit bottom, I invested additional funds in stocks at their low, hoping to regain some of the funds I lost. Later in 2009, I sold some stock off for a profit, gaining some of my lost funds back. Here is the problem.

I now show a gain of some 10''s of thousands of dollars, but have still not recovered all my losses from 2007 and 2008. You are only able to carryover a $3,000 loss from previous years. So, with my own saved money that I invested, I now must pay additional capital gains taxes on my own funds. Needless to say i am horrified. I will owe a hugh sum(for me).

Does anyone know if I have my facts right on this? All I wanted to do was get my own money back. I can''t see this as a capital gain, but I don''t know what else to think.

I would appreciate any helpful comments on this.

Thanks,

Annette

 

[karpouzi]

I''m a little confused about when you bought and when you sold. You don''t realize a gain or loss until you sell. So if you didn''t sell any stock in 2006, 2007, or 2008, you didn''t have a loss in those years, for tax purposes at least.

I would suggest talking to a CPA for planning purposes if you are going to be making significant stock purchases and sales in taxable accounts.

 

[Harriet]

I too am confused. By "I haven''t recovered my losses," do you mean that you haven''t closed out your positions? If you haven''t, your capital losses have not been realised and will not be recognised by the IRS. As such, you won''t be able to net your cap gains against them. Also, how long you have held the positions matter. The tax treatment of long- and short- term cap gains differ. Do see a tax professional.

 

[Miss Sparkly]

I would consult a CPA, however, you do have your facts correct. Let me see if I can say my example as clear as possible (which isn't always possible for me!).

Example:

$10,000 is invested in 2006 - transaction one

worth of investments is $8,000 in 2007

worth of investments is $6,000 in 2008

Another $10,000 is invested in 2008 - transaction two

in 2009 One is worth $6,000 and Two is worth $12,000

You pull Two out - even though there is a net LOSS is $2,000 they are seen as seperate transactions and are treated as so. So, you could claim the loss on One but you also have to claim the gain on Two, no matter what the loss and gain are they are still SEPERATE

Say you leave One in for another three years and it is valued at $16,000. You only pay taxes on $6,000 because your initial investment was $10,000.

To begin combining transactions to calculate net loss and gain would be too complicated and would result in back taxes from previous years. Back taxes are subject to penalty and interest therefore the tax code would have to be rewrote to account for the differences.

eta: this is just a simple example since we don't know all the details. Source of information was from Tax Accountant DH

 

[smitcompton]

Hi All,

Lets ss if I can clarify. I trade a number of stocks. I lost on a number of stocks which I sold to get out of them. However as I saw some stocks going lower in 2008, like Citi I started buying it. I sold some off as well as Bank of America to get my gain for this year. None have been held for over a year. I still hold some stocks and in a few months they will probably fall into long term capital gains. But the rest are short term gains that I must take as income. I understand that part.

But my annoyance stems from the fact that it was all my own capital that went into the stock market. There is no real gain to me. To me I am paying the government taxes on what I already paid taxes on. You see I''m trying to get back in cash what I lost, to put it in its proper place(my bank account. I still hold stock.

I file a short form so if there is no other way to treat this I really don''t need an accountant. My house is paid up, I have safe investments that yield interest to me and my retirement benefits(yes, I''m old) are my income. No other complications.
Just paying taxes.

I hope it helps.

Thanks,
Annette

 

[Abril]

Date: 2/6/2010 11:44:55 AM
Author:smitcompton
Hi All,

I just did a prelim of my taxes. In late 2006 I invested in the stock market(at the high). I lost money in 2006, 2007. and in 2008, when the market collapsed, I along with many other lost about $40,000. In March of 2009, when the market hit bottom, I invested additional funds in stocks at their low, hoping to regain some of the funds I lost. Later in 2009, I sold some stock off for a profit, gaining some of my lost funds back. Here is the problem.

I now show a gain of some 10''s of thousands of dollars, but have still not recovered all my losses from 2007 and 2008. You are only able to carryover a $3,000 loss from previous years. So, with my own saved money that I invested, I now must pay additional capital gains taxes on my own funds. Needless to say i am horrified. I will owe a hugh sum(for me).

Does anyone know if I have my facts right on this? All I wanted to do was get my own money back. I can''t see this as a capital gain, but I don''t know what else to think.

I would appreciate any helpful comments on this.

Thanks,

Annette

I''m no accountant, but this isn''t correct. You can carry over as much in capital losses as needed to offset your capital gains, but only up to a $3,000 loss per year. The capital losses not used do NOT expire (unless they change the tax laws). You can keep building up the losses and just use them when needed.

Example: 2008: you lost $10,000. You claim a $3,000 loss (the maximum) for that tax year. You still have $7,000 in losses.

2009: You made $2,000 in short-term capital gains. Just offset that with $5,000 in losses from 2008. Then claim a $3,000 loss in tax year 2009. Your pot of losses has shrunk to $2,000.

2010: Let''s say you gain $3,000 in long-term capital gains. You offset that with the $2,000 losses remaining from 2008. Now your capital gains are $1,000. On your tax return filed April 15, 2011, you have to pay tax on the $1,000 gain, which is only 15% of $1,000 because you held the stock for more than a year. You''ve run out of capital losses.

 

[smitcompton]

Hi All and Avril I may love you.

Thank you one and all. Avril, that is what I am looking for. I do have losses from the other 2 yrs. If I can take them on my return for this year, I will have no problem. I kinda gave up yesterday deciding myself that the Gov''t probably did each tax yr separately with the exception that I could take off the 3000 in carry over losses. Oh if I can apply this gain against my losses I''m good, really good.
I can''t thank enough. Thank You. Thank You,

Annette

 

[soocool]

I see your question has been answered, but my question to you is why would you sink your money solely into stocks ? That is extremely risky. Do you have any investments that will offset the risk of your stock performance?

 

[smitcompton]

Hi Socool,

No, I am not that foolish to put all my investments into the stock market. I had what I considered to be money that if I lost it I would still be able to live the lifestyle I do at the present. However, no matter who you are you don''t like losing money.

I have several friends who also lost money. One gal i know who did not sell her stock is just waiting for the market to return to "normal. She thinks my losses are nothing. She is financially secure and doesn''t get as excited as I do.

I enjoy trading the market and will not risk everything. But paying taxes I don''t understand is also another thing. But Abril has made the whole thing make sense. I hope she''s right.

Thanks again

Annette

ps If I misread you, and you were asking about Citi-Group and BAC as risky investments-- it is possible. But I purchased them so low I think Ill come out ahead. At least that is the plan for now.

 

[perry]

You really need to talk to a good tax accountant; and take in copies of your previous years tax forms.

It is entirely possible that your earlier years could be refiled (ammended returns) to minimize your problems now. They can also advise you on the best strategy for not just this year, but to set yourself up better for next year.

On the other hand, concerning your comment about paying taxes on money you already paid taxes on... I think you missed a clear definition. Your new realized earnings are not money that you have paid taxes on.

Perry