As the year draws to an end, I start turning my mind more towards taxes. I’ve been thinking about taxes this entire year, as a matter of fact, thanks to my underestimation of income. I believe I’ve made the adjustments necessary to avoid facing a large tax bill and penalty, and CNN Money has provided some suggestions for reducing my tax bill further.
The author’s second suggestion is to reduce capital gains.
Your losses can offset 100 percent of your capital gains plus up to another $3,000 in ordinary income. If you have losses beyond that you can carry them forward to use on future tax returns.
Short-term capital gains, the result of selling stock within a year of buying if the share price has increased, are taxed alongside your regular income at the same rates. The current tax rules allow a tax benefit for holding onto stocks for longer than a year. The most these gains will be taxed is 15% until these rules change. If you sell stocks whose prices have declined, the amount of the loss can simply be subtracted from your capital gains to reduce your tax.
As the article stipulates, if you sell your investments for a loss and repurchase the same investment within 30 days, the resulting capital loss can’t be considered for offsetting capital gains.
Personally, I believe major decisions about investments in companies should have more to do with the particular company and its future prospects rather than tax considerations. However, if the tax offset is large enough, you can’t ignore the option.
7 Year-End Tax-Saving Moves [CNN Money]
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I just want to get this right… If I have a short-term loss from selling stocks of $1000. I can deduct that from my yearly income, and essentially reduced by AGI by $1000?
MoneyFwd: Not exactly. Your loss can be deducted from capital gains first, and then up to $3,000 of gross income.
You might want to check with a tax expert… or at least plug the numbers in tax software like TurboTax. The software take care of it automatically.