Skip to main content

Why Can't I Deduct Those Losses: The Double or Quadruple Whammy of Your Losses in the Stock Market

Another Black Monday.  What do you need to know about stock market losses related to your taxes.

Limited Reduction of Income on Your Tax Return for This Year


The smoke is rising from his ears and he wants to know why he can't use his stock market losses to offset his income on his income tax return.  Yeah, it is a bad deal.  To add to salt to a festering wound you are limited to taking capital losses, like losses on your stock trades, up to a net of $3,000.  So net means you can use actual losses to offset any actual gains you had on trades this year plus up to $3,000 of losses.  When you have lost over $3,000 of value that is not enough.  


What about the rest of those actual losses?  You can carry those forward and use them in future years.  But remember those are only the actual losses.  


Actual Losses Only


Actual losses are losses from positions you have closed out of.  In other words losses from stock that you have sold.  If you still hold the stock, now a loss position but an active position, those are not yet actual losses you can report on your tax return.  It is only the losses from stock you have sold.


Wash Sale Limitations


Before you think about it, no you cannot sell a position and reenter it within 30 days.  If you do it is a wash sale and not typically deductible on your tax return.  So even if you want to stay in a position for some reason you can't sell to take the loss and then get right back in.  You will loose the loss.


No Losses From Retirement Accounts


And no you cannot deduct losses from your retirement accounts on your tax return.  You see those funds were never taxed and you do not get to deduct losses just as you don't pay taxes on gains until you take the money out and then they are taxed at ordinary income tax rates rather than the favorable capital gains tax rates.

So that is actually four whammies or a quadruple whammy from your losses in the stock market.  No one likes losses and especially when they are compounded by the tax laws but you need to know how those losses will be treated from a tax standpoint.  It is better to know what to expect now so you can make informed decisions rather than be surprised later.

Of course, if you are classified as Qualified Trader then there are a different set of rules for you and your trading activity.

I would like to help you succeed with your financial plans and with your businesses.  Feel free to use my contact information below to contact me to discuss what I can do for you.  Yes, we can discuss strategy to deal with those stock market losses.

Jeff Haywood, CPA

The CPA Superhero
217-923-8007
jeff.jhtaxes@gmail.com

Follow the CPA Superhero on Twitter:


My posts contain general information that does not fit every situation, they are not all inclusive, and as always for your tax situation everything "depends on facts and circumstances."  In addition, the information/IRS requirements are always subject to change.  So call me to talk about your specific facts and circumstances and what you want to accomplish.

Popular posts from this blog

The Dreaded IRS Audit...The Reality

Updated May 31, 2018

There is a fear of an IRS audit.  People have heard all kinds of stories and have many ideas about what will cause an audit and how to avoid it.  For example some fear that taking a deduction that they are entitled to will make them the target of an IRS audit.  I have also heard clients say both that filing on time will prevent an audit and also that filing an extension will avoid an audit.  So what is the reality of IRS audits.  

Who gets audited and why
The IRS audits aroud 1% of tax returns they receive.  That sounds like random selection but there are things that increase your chances of selection.  Ordinary taxpayers with ordinary income and deductions if audited are usually just a random and very unlikely selection.  In fact none of my cleints that can be described this way have ever been randomly selected for an audit.  Most audits are triggered by the unusual or areas of suspect by the IRS.  The IRS itself indicates there are randomly selected audits but m…

Who Is Watching Your Business? Someone Is. Hopefully It Is You.

Who Is Watching Your Business A few employees from the office went out together for dinner and a movie. It was interesting when the charges at a local restaurant and movie theater showed up on the next business credit card bill. It was reported to me as suspicious and I took it to the owner. Upon investigation it looked like the employees from the office had charged their night out on a company credit card. But how did they do that? Had the owner given them permission? No, he had not. It was discovered that one of the accountants had, without authorization, requested an additional credit card which she used for personal expenses.

Later, at tax time, a local tax-preparer called to ask about an employee's W-2. I could not give information about an employees salary but the preparer found two things interesting. One, some one from the firm I worked for would come to him to have their taxes done rather than have them done in house. Second, the salary and of course the taxes withheld s…

Year End Tax Moves to Reduce Business Profits

Here are some tax planning strategies to help you reduce profits for the year and thus reduce the taxes you will pay you. (Keep in mind if you want to accelerate profit into this year do the opposite of the strategies listed below)

Delay Revenue If your business is an accrual basis tax reporting business delay sending out invoices until next year. For a cash basis tax reporting business delay receipt of income. You may need to call people you have already invoiced to request that they make sure you don't receive their payment before the year end. In reality they can send you a payment before year end and you could receive it after year end so this could benefit both you and your clients/customers.

Accelerate Expenses On the Expense side for an accrual basis tax reporting business make sure you enter all the bills you receive before year-end and make sure they are dated this year. For a cash basis tax reporting business pay as many bills by year-end as possible. If cash is tight m…