Ok I've been out the market for a bit so i dont know if this is right or not.......but my dad plays the market a bit and this is what he said.............. He said that the IRS told him that he has to pay approx 50% taxes on his gains, but the losses dont count. Meaning lets say he lost 50k on one stock and made 50k on another. To me that should be a wash...even...back to zero, didnt make a dollar, no taxes owed. Hes saying that the 50k he lost is LOST....GONE. (minus 3k that he can claim as a loss) but the 50k he made he'd have to pay 50% taxes on. So in this scenario where I think it should be a wash, hes saying he'd be out the 50k he lost, on top of the 25k he'd have to pay in taxes on the 50k he made. minus 3k allowed to claim in losses. for a total of paying 22k to uncle sam. So i say hes even in this scenario, paying $0.00 in taxes. He says he'd owe $22,000.00 in taxes. Someone please tell me this is WRONG information that he's received. Thanks alot in advance for any responses !!
The losses will offset the gains and there is no taxes. The exception is if the losses are wash sales.
I didnt think that could possibly be true. that'd be a lose lose scenario and I dont think anyone would be able to trade for a living. But what do ya mean by "if the losses are wash sales ?" Thanks !
here ya go.....read it.. http://www.irs.gov/publications/p550/ch04.html your welcome. ps. dad's wrong...sales of stock held longer than a year get favorable tax treatment of 15% (max)..shorter term they are taxed at the ordinary tax rate and currently no one is paying a 50% rate in Federal Income tax. Losses are subtracted from gains, net losses can be taken at $3000 per year against ordinary income. If you look at a Schedule D and read the instructions for it you can figure it out for him. Wash sales can't be taken but are used to reduce the basis.
Actually, here is what I "think" your dad might have been referring to and it HAS hurt many a trader. Let's say your dad has 100k and makes 100k in profits in 2012 and let's keep the math simple and say he owes 50k in taxes on his trading. Then in 2013, let's say dad losses all 200k in the first 3 months of the year. Dad will still owe the 50k from 2012 and will get to write off only 3k from the 200k he lost in 2013. But even worse, dad is completely broke and has no way to pay the 50k he owes in taxes from 2012. Think this doesn't happen? LOL. It was a HUGE mess in 2000 and again in 2008. The IRS will take no pitty on you. Pay up or else.
Wash Sales You cannot deduct losses from sales or trades of stock or securities in a wash sale. A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you: 1.Buy substantially identical stock or securities, 2.Acquire substantially identical stock or securities in a fully taxable trade, 3.Acquire a contract or option to buy substantially identical stock or securities, or 4.Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA. If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities includes the holding period of the stock or securities sold. For more information, see Wash Sales, in chapter 4 of Publication 550.
on another note many IRS agents who take calls are incorrect in their information..... best to go directly to irs.gov and just type in your question in the search box and read the pub
It would be zero. I had exact same case in the past.even if you have long term losses from previous years-once you have profits,you pay taxes onthe difference.profit-loss=what you pay.even if all this on different accounts/firms. It might be a bit off if there is a wash sales, but not by much
But not if different shapes. Long term losses can only offset long term gains. Short term losses can only offset short term gains. So if you make 50k on a short term trade but realize a loss of 50k on a long term investment then you pay ordinary income on 50k and get a 3,000 deduction on your loss with 47,000 in carry forward long term losses.
-- Long term losses can only offset long term gains. Short term losses can only offset short term gains.-- i disagree. and so my tax preparation soft. here is a simple solution for OP or anyone,who is in doubt-grab an old tax preparation app CD like a turbo tax or tax cut or whatever. they are free(cause it's useless) and create a dummy return. insert whatever numbers you want to play with. check results