According to my friends, I’m one of those people who has “a guy” for everything.

I have a guy who does my car maintenance, a guy who helps me maintain this blog, and occasionally a handyman who gets a call on Sunday evening because I’m a wannabe Home Depot weekend warrior.

However, my most important guy (technically it’s a she, not a he) is my Certified Public Accountant (CPA).

The last organization in the world I want to piss off is the IRS, so I seek the advice of a CPA when I’m dealing with the scariest organization in the known universe.  I’m a self employed equities trader, so you can imagine my tax returns are fairly intense.

Use your stock market losses to your advantage

Since we’re nearing the end of 2008, you only have a few days remaining to sell any stocks in your portfolio that might have lost you money.

Knowing a few things about the subject, I wanted to ask her advice on tax loss harvesting, which is basically a method of selling any stocks that could offset any potential gains that you had from the year, and create a net negative loss for your overall portfolio performance.

Please see her email and tax loss harvesting example below:

Tax loss harvesting is the process of using capital losses to offset capital gains during a tax year.

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Capital losses can offset capital gains, and any excess loss can be deducted with a limit of $3,000.00 in any one year.

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Example:

Gains               $ 10,000.00

Losses            $(15,000.00)

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Excess loss      $(5,000.00)

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Tax Deduction    $3,000.00

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Loss Carryover   $2,000.00

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So, you can carryover the excess loss over $3,000.00 to offset any gains next year and any year following. It does not expire under todays tax law.

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NOTE: The $3,000.00 loss will only save you your tax rate times the loss amount in taxes.

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Solution:

$3,000.00 x 23% tax rate = $690.00 in Federal tax savings.  The State tax savings would be around 6.5 – 7 % of the loss amount.

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You should talk to your stock broker to decide which securities to sell during before year end.

Photo by Tracy_O

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