Okay, I got back into trading this year and basically getting smoked. This past year has basically been a nightmare financially for me. The first 6 years of the decade were good...slow and steady wins the race and not fast and furious and greedy. I'm pretending my backs to the wall and I had to liquidate all my accounts. Hypothetically, I say screw it and cash in my accounts. (I'd like to put a 20% down payment on a condo in the near future anyway). Trading account and 401k from old job is where 80% of my money is. ROTH IRA left alone since that won't be touched until 59 1/2. My 401k from my old job just sits as the plan was to roll it over into a new jobs plan whenever I start working again. There is only 36k and change in there. I eat the 20% penalty withdrawing under the age of 59 1/2. (ouch!). So thats $7,200 knocked off and a transfer of 29k. But since this has been the year from hell, I have 20k in realized losses trading and another 18k losses if I liquidated and sold rest of positions tomorrow. So how do you treat this come tax season for year 2007? How do I use these losses to my advantage? I have no W-2 or shit this year since I have no job. What gets put down as title (loser trader)? What sucks also is I found out I can't put 4k as a contribution into my Roth this year like I've done every year for 5 years since I have no earned income (correct?). Man, I need to get a freegin' job again. Also do I lose out on the losses from 2007 next year if by chance my positions I leave alone turn around so I don't pay capital gains taxes on the 2008 year? How much time do you have to use them as a write off in the future? Man, I need to get to sleep. Thanks for feedback. I will sit down with my accountant at some point. He will say "I told you so for trying to be a day trader"...f me. Eligibility requirements You must have earned income (compensation) in order to contribute to a Roth IRA. The annual amount you can contribute to a Roth IRA is solely dependent on your adjusted gross income as determined on your federal income tax return. The following table should help you determine whether or not you are eligible to contribute to a Roth IRA:
FWIW, you do not need to have earned income (W-2) to file for capital gains/losses. It is my understanding that capital losses are carry forwarded and applied towards future capital gains with no time limit. Capital losses can not be applied towards earned income though. (my understanding) IMHO, considering that you do not have any capital gains tax concerns this year and you have come to the realization that "day trading" is not in your best economic interest, liquidating your accounts (those not in the IRA) will not have a negative effect on your situation. Your capital losses can be applied towards future gains. The downside is if your other positions are held less than one year, they will be categorized as short term capital loss and I believe can only be applied to future short term capital gains. This is where the need to speak to your accountant is recommended, i.e. planning for future investments and applying your current losses most efficiently... I hope my understanding is correct, as I would not want to give you poor advice, just something to think about... you may try going to www.irs.gov and searching capital gains for their publication (s) concerning your situation, most of your questions should be answered in the pubs, at the minimum it will help focus your questions to your accountant... Good luck
You can write off up to $3000 but your penalty on early withdrawal is a backended tax line item so you will be stuck for that and cannot write off losses against it. Good luck.
I'm confused. Do you even need to file a return if you have no "earned income" and your trading resulted in losses?
HeHe ... I learned about this one the hardway ... Uncle sam will know; especially if you trade stocks or options ... and really especially if you day trade. When I first started out day trading (didnt make any money that year). But did alot of trades during one month. The IRS has all the sales - but none of the buys (wierd system). So they think you made millions (especially when you day trade). Needless to say they dont get off your back till you file a return. And that will often screw things up for future returns etc ... So to make a long story short YES you need to file even if you had no income and lost money in the market. And to answer the OP question ... as far as I know you can only go 3k into the hole each year with your losses (meaning only 3k can come off your income). So then you can carry this over year and year into you use it all or until you have gains in your investing and then you can offset your gains with the previous losses. (correct me if I am wrong). I'll be doing this - this upcoming year myself