My dad has lost quite a bit of money trading stocks throughout his life. He said he can carry his loss year after year and he won't have to pay taxes until he's net positive in stocks for his whole life. Is this true or not? If that's the case, my dad wants me to trade on an account under his name so that when I make money this year, it won't be taxed. Can anyone verify this?
You are limited to writing off up to $3000 or so, maybe a little more , a year of losses from prior years. I forget the exact number. That was the code as of last year.
I am in no way qualified to give tax advice I use these folks, give em a call and they will answer your questions http://www.tradersaccounting.com/index.php Redneck
It is true that losses carry over above 3k each year and can offset gains in future years. If you dad has say 100K in losses for 2008 he will be able to deduct $3k against his 2008 taxable income. If he makes gains in 2009 he will be able to use the 97K loss carry over to offset gains.
Exactly, right JF. Assume a scenario where a beginning trader starts trading and loses all of his/her $30,000.00 trading capital. He/she vows never to trade again, but this loss will have to be written down at a rate of $3,000 a year for the next 10 years. That's the max writedown for capital losses, 3k a year, but you can carry losses forward, so if you next year is a winner, you can write down past years losses, assuming they were large enough. Hope this helps, and a word of advice.....get yourself a good accountant that knows how to deal with captial gains/losses. I would probably be a little skeptical of using a trader-centric, web-based accounting service, but that's just me.
FWIW Do yâall know if heâs filing as an individual / or business Do yâall know the accounting method of record he filed with the IRS Do yâall know how many accountants do not know how to properly file taxes for traders Just Food for Thought
This is true in the sense that he does not have to pay taxes on his capital gains until he is net positive but he still has to pay taxes on his ordinary income.
The advice on these boards is horrible. If he lost $100k, in stocks, and the next year, he makes $50k, IN STOCKS, he won't have to pay taxes on that. If he lost $100k, in stocks, and the next year he gets a job that makes $35k, selling used cars, he can only write off $3k of the 100k losses from stocks against his $35k in regular income. He can do that every year for the next 34 years until it has been written off. However, if he makes $100k in stocks the next year, he won't pay any taxes.
Not sure if this applies elsewhere, but at least in New Jersey you cannot carry losses in excess of $3K forward for state income tax on capital gains. BTW, the losses only apply against capital gains, not income.