Market Loss = tax deductible?

Disappear lika Ghost said: "How does that actually work? Are we talking about the overall, year end #? Or per trade? Let me elaborate on that: Overall: If by the end of the year, I see the annual return being -5%, or a loss of $5,000, that's tax deductible, right? (income tax, correct?) Per trade: Whatever $ I make per trade is taxable. Whatever I lose per trade is tax deductible. I really hope it's "per trade"... hehe"

cwms said: "[QUOTE=Disappear lika Ghost;68179]How does that actually work? Are we talking about the overall, year end #? Or per trade? Let me elaborate on that: Overall: If by the end of the year, I see the annual return being -5%, or a loss of $5,000, that's tax deductible, right? (income tax, correct?) Per trade: Whatever $ I make per trade is taxable. Whatever I lose per trade is tax deductible. I really hope it's "per trade"... hehe[/QUOTE] You add up all your gains and losses. If you have $1000 in capital gains and $1200 in losses, you end up with a net $200 loss. Don't forget you have to separate your long term and short term gains and losses."

Disappear lika Ghost said: "What's the definition and differences between long term and short term?"

Darren said: "[quote=Disappear lika Ghost;68184]What's the definition and differences between long term and short term?[/quote] Short term is any stock held less than 12 months. Long term is any stock held longer that 12 months."

cwms said: "[QUOTE=Disappear lika Ghost;68184]What's the definition and differences between long term and short term?[/QUOTE] You have to keep them separate as they are taxed at different tax rates."

jxd1843 said: "Long term assets= any asset held for more than 1 year short term asset= asset held for less than 1 year"

bjohn13 said: "First of all, I'd strongly recommend consulting a tax advisor for all of your tax questions. Now that that is out of the way, I figured I'd clarify a little. You are not forced to declare a profit or allowed to declare a loss on a stock that you hold. For instance, if you buy 100 shares of stock XYZ in January for $10,000, and at the end of the year, you still hold all 100 shares that are now worth $15,000, you do not have to pay taxes on that gain. However, if you sell by the end of the year for $15,000, you now have $5,000 in taxable income. Now, if stock XYZ is only worth $7,000 at the end of the year, and you still hold all 100 shares, you are not allowed to declare that loss as a deduction either. However, if you sell by the end of the year for $7,000, you are allowed to declare $3,000 as a tax deduction. If your $10,000 investment earned 1% in dividend payments, you now have $100 in taxable income that you have to declare. Also remember that your commission payments are tax deductible. I still strongly recommend paying someone to do your taxes for you. It costs me about $30 more per year to have someone else do my taxes than it does to use TurboTax or one of the similar programs, and that money is tax deductible as well."

Disappear lika Ghost said: "commission payments are tax deductible??? Even for day trade? That's a significant amount over a year."

bjohn13 said: "[QUOTE=Disappear lika Ghost;68281]commission payments are tax deductible??? Even for day trade? That's a significant amount over a year.[/QUOTE] I believe there is a cap, though I have no clue what it is."

cwms said: "[QUOTE=Disappear lika Ghost;68281]commission payments are tax deductible??? Even for day trade? That's a significant amount over a year.[/QUOTE] The way this works...if you buy $1000 worth of stock and pay $10 commission, your cost basis for that stock is $1010. If you sell that stock for $1200 and pay $10 commission, you net $1190. Total profit is $180 and that is what you pay tax on. So always add the commission to the cost of the stock and deduct commission from your stock sale to determine net profit or loss. I suggest if you are going to be a player in the market, get some kind of financial software to track your investments. I've been using Quicken for years and have been very happy with it. You track all your investments, what you paid for them, factoring in commissions and profits and losses. You can also track first in, first out or last in, first out. This is very important."

max2themax said: "Treat a stock like a capital asset when you're buying it. All acquiring costs (commission) is part of the cost to you. Any unrealized gains (you didn't sell it yet) is not taxable, any realized gains (you sold it) becomes taxable. Now if you're leveraging to buy the stocks, that cost of debt is tax deductible at (1-t)*(i)*(total amount)."

bjohn13 said: "[QUOTE=max2themax;69102]Treat a stock like a capital asset when you're buying it. All acquiring costs (commission) is part of the cost to you. Any unrealized gains (you didn't sell it yet) is not taxable, any realized gains (you sold it) becomes taxable. Now if you're leveraging to buy the stocks, that cost of debt is tax deductible at (1-t)*(i)*(total amount).[/QUOTE] Can you explain this forula? I bought on margin for the first time this year when the market was tanking, and I want to get an idea on what to expect. i*total total amount, I'm assuming, is the amount of interest paid (interest rate times total amount borrowed = interest paid). I need to multiply this times (1-t), but I'm unsure what the "t" stands for."

max2themax said: "i*(total amount)*(1-t) 'i' is interest rate, total amount is how much you have on margin, these two multiplied is how much interest you are paying, 't' is the tax rate I'm assuming this is where you got lost Now that interest you are paying is deducted from your income as an expense hence EBITDA, interest expense is tax deductible. Suppose you have a $100 income, tax rate is 50%, and you have to pay $20 for interest: A. Suppose interest is not tax deductible, you are paying $50 in tax regardless, then less the $20 for interest which gives you [B]$30 of net income[/B]. B. Suppose now interest is tax deductible, you have an pre-tax income of $80 and a [B]net income of $40[/B] because the $20 dollars is deducted. Here the interest only cost you $10 versus $20 from the previous scenario. In reality, the interest payment of $20, becomes only (1-t)*(interest payment) because of the tax you get to save, in this case would be (1-50%)*(20) which is $10. Exactly the difference between the two scenarios. total amount*i = interest cost, t*i*total amount = tax saved interest cost - tax saved = actual cost (total amount*i) - (t*total amount*i) = actual cost (1-t)*total amount*i = actual cost"

bjohn13 said: "Thank you."

Cryogenix said: "[QUOTE=bjohn13;68280]Now, if stock XYZ is only worth $7,000 at the end of the year, and you still hold all 100 shares, you are not allowed to declare that loss as a deduction either. However, if you sell by the end of the year for $7,000, you are allowed to declare $3,000 as a tax deduction..[/QUOTE] Great information, guys. Fortunately, I haven't run into this yet, but isn't there something where you're only allowed to claim up to $3,000 per year in stock losses? I thought anything above that was carried over to following years. The above-example is good, but also fits nicely into that $3,000 cap. What if that XYZ realized loss was $4,000 for the year? My three combined losses for last year were under $2,000, so I didn't bother probing further. But I do recall reading something about that last year on this forum."