Know when you have a deductible loss

Just because the stock market lost money, doesn't mean you have a deductible loss. As long as you hold on to an investment, you only have a loss on paper. It's only when you actually sell the investment that you have a transaction to report on your tax return.

Fortunately, the tax law allows you to offset your capital gains by your capital losses. You can avoid or minimize taxable gain by selling two investments, one at a gain and the other at a loss.

However, an investment sold at a loss is not gone forever. If you believe it was a good long-term investment, you can buy it back. This strategy work very well if the price of the investment either stays the same or goes down ever further. For example, let's say you sold 100 shares of ACME stock, which you purchased for $3,000, and receive $2,500 in cash proceeds from the sale. You can use the $500 capital loss to offset capital gains or other income. Now. let's assume you want to buy back the ACME stock because it's a good long-term investment. If the price of 100 shares of ACME is $2,500 or less, you can use the proceeds from the first sale to buy the stock back without having to provide any additional money. Caution: You must wait at least 31 days after the sale to repurchase the stock, otherwise the loss is not allowed.

If you are an IRA owner over age 59 1/2, you can take advantage of the down market by taking distributions (either voluntarily or required) of actual investments from your IRA, instead of cash. You'll also escape the additional ten-percent premature distribution penalty. If there are investments within your IRA account that you want to hold long-term, but the value is currently down, you may want to consider having them distributed to you. Be aware that this is a taxable event and the fair market value of the investment must be reported on your tax return. However, any appreciation earned after the distribution will not be taxable until you sell the investment. This provides several advantages:

  • If you sell the investment, it will be taxed at the lower capital gains rate, which may be less than the rate for your IRA distribution;
  • It reduces your IRA account so your required minimum distributions may be smaller in the future years; and
  • You can gift that investment to a person or a charity at a later date.

As always, consult your investment and tax advisor prior to taking any actions.

Tax Tips Small Business

  • Reimbursing Your Employees for Business Expenses

    What method should you choose?

    Attracting and keeping good employees is a goal in any business. One way to make life easier for your employees is to have an easy to use reimbursement plan. Travel, transportation, moving, and educational expenses are common reimbursable expenses. As the employer, you have the option to set up an accountable or nonaccountable reimbursement plan. Under either plan, you can deduct many of the business expenses paid to or for employees. However, the plan you choose can make a big difference to your employees.

    Read more ...

Small Business Quick Tip

  • Self Employed Health Insurance

    If you are a self-employed taxpayer, you may deduct 100 percent of your health insurance premiums from your income. The deduction for health insurance premiums does not reduce your self-employment tax, however.
Wednesday, 26th September 2018
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Tax Tips Personal

  • Cleaning Out Your Closets?

    Items you donate may not qualify for a deduction

    It used to be that you could take all your unused clothing and household items to the local Goodwill, Salvation Army, or thrift store and reap a nice charitable contribution deduction.

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Personal Quick Tip

  • Adjusting Withholding

    If your tax refund was too high or too low, adjust your withholding so it doesn't happen again next year. You can file a revised W-4 with your employer at any time to increase or decrease the number of exemptions you claim. The more exemptions you claim, the less tax your employer withholds from your wages, resulting in a smaller refund. Decreasing the number of exemptions results in more withholding and a larger refund.