This year I have a lot of realized financial gains!
To offset big gain years, I usually have some speculative stocks that haven’t done as well as I hoped that they would, and so this is the time that I like to sell them. I use to procrastinate and sell these dog stocks closer to year-end (check out: Time To Sell Year End Capital Losses?), but this just create stress and increases the likely hood that I’ll forget about them in the marathon of the Christmas and New Year’s season rush.
The taking stock losses tax rule is you can declare the loss on your tax for up to $3,000 over any recognized gain offset that you might have. So for example, if you had a huge gain in one stock and you sold it netting $12,000 in capital gain, but you also had a recognized losses in other stocks where you lost a total of $16,000, you can only claim $15,000 in losses on your income tax form this year. That said, you can carry the left over $1,000 forward and take the loss against the current or future year(s’) income taxes.
From a personal perspective, I use to be embarrassed about selling my stock losses, and so I would hold onto them for years hoping they might come back. And there is a small chance that they might, you never know… Now I look forward to dropping these dogs. I now view it as I played the market and these are the games that I lost. In fact in some ways I’m very happy to get rid of these stocks now, and actually I now have less and less losers every year.
Another nice perk about selling losses is that you get to start the new year with a clean slate. Consider the loss a learning experience and move one. Over time hopefully you ability to pick more winning stocks will surface. If not, then go with mutual funds or ETFs.
Want to read more? Check out the article at Retire By 40‘s site called: Sell Your Losers Before 2011 Ends! It good to see others do similar strategies as I do!
Bests, and here’s a toast to a great 2012 stock market year (at least I hope),
MR
It’s important to realize that capital losses in excess of capital gains plus the additional $3,000 income offset limit must be carried forward to future years. When it comes to individuals, there are no provisions to carry anything back to prior years, that ability is reserved for C-Corps only. The only reasons acceptable for amending an individual tax return are to correct inaccurate information or to report figures that weren’t originally submitted the first time.
Yeah, well that’s what turbo tax is for 🙂
As you can tell, I had Tax class a long time ago…
It’s a good think my blog is about personal finance and not tax losses (lol)
Thanks for the mention! It was a big gain year (early 2011) and I needed to sell off some losers to offset those gains. I hate paying tax and avoid it as much as possible. 🙂
Congratulations! I had some big gains in my stock account, but they are left mostly unrealized. So I decided to use the losses against my income from blogging.
At first I was going to make the carry-back comment, but Eric beat me to it!
I love starting the new year with a freshly weeded portfolio. It puts me in a good mood to go on the attack and look for quality names to “plant” in my investment “garden.”
Congrats on the nice gains this year!
Thanks, yeah I had Tax class a long time ago, my bad on that one.
I agree on the weeding! It’s nice to close the year out, especially if you are for the better 🙂
I wish more people would ditch their embarrassment about selling losers, like you have MR. Too many stock investors seem to do the opposite and sell their winners too soon while hanging grimly on to their losers. But why wait until December?