2013 Tax Changes

[savory]

I have an opportunity to accept a few thousand dollars from a deferred stock fund from my company. I get a payout once per year and have one still coming this year and for the following two years. My former company pays about 5.5% interest for the use of the money and it accumulates tax free until I get my annual installment.

There might be tax changes coming in 2013 that could impact my annual payment. Does anyone have any thoughts about the possible change in the tax code? Would I be better off taking the funds now given the potential tax code changes? Your thoughts are appreciated and let me know if you have more questions.

Thanks

[Texas Proud]

Maybe if you give some info on what the tax change is would help

[MichaelB]

Discussion about tax change is pure speculation. I always plan on current policy extended with few changes and none that benefit me.

Hopefully there will be no political discussion here

[savory]

The tax changes include the Long-term Capital Gain tax rate going up next year based on current law and the Obama Health Care Tax scheduled to be implemented next year,

[l2ridehd]

Regardless of who is in power and what promises have been made, just because we have created so much debt, taxes will be going up in the future. Personally I would take the bird in the hand. As Michael said, plan with what you know as most future changes will not help people making money.

[mckittri2000]

DaveF is correct on 2013 tax rate increases. 2014 brings about the "Bush" tax cut expiration which would increase dividend and capital gains rates if not extended. No one can accurately predict what politicians will do so you may want to wait to make that decision until you see which party is in power after the elections in the fall.

[MichaelB]

Quote:

Originally Posted by l2ridehd As Michael said, plan with what you know as most future changes will not help people making money.

For clarification sake, that is what I wrote.

[GrayHare]

If I have a 2011 capital loss to carryover to 2012, I plan to not use it to offset gains in tax year 2012, but rather save it for 2013 when offsetting gains may be more valuable. AFAIK, there is no rule that says a capital loss carryover MUST be used against gains in the immediately following year.

[Texas Proud]

Quote:

Originally Posted by GrayHare If I have a 2011 capital loss to carryover to 2012, I plan to not use it to offset gains in tax year 2012, but rather save it for 2013 when offsetting gains may be more valuable. AFAIK, there is no rule that says a capital loss carryover MUST be used against gains in the immediately following year.

Yes you must... you do not get to choose to skip a year...

[GrayHare]

Quote:

Originally Posted by Texas Proud Yes you must... you do not get to choose to skip a year...

I've searched the regs for that, never found it. Do you have a link/reference?

[RetireBy90]

Quote:

from l2ridehd: Regardless of who is in power and what promises have been made, just because we have created so much debt, taxes will be going up in the future. Personally I would take the bird in the hand. As Michael said, plan with what you know as most future changes will not help people making money.

+1 I hope we as a country get past debate about increased taxes being good or bad and just raise some taxes along with cuts to spending and then we can get back to talking about each other.

Quote:

from mckiittri2000: No one can accurately predict what politicians will do

+1 again.

I'm resigned that the truely rich will never pay 30% in taxes, the poor don't have it to pay, so that leaves me and my neighbor. As Bill Cosby once said something like "The goverment comes for regular folks first."

[Animorph]

Quote:

Originally Posted by GrayHare If I have a 2011 capital loss to carryover to 2012, I plan to not use it to offset gains in tax year 2012, but rather save it for 2013 when offsetting gains may be more valuable. AFAIK, there is no rule that says a capital loss carryover MUST be used against gains in the immediately following year.

Edit: Oops, partial post. Complete text below.

[GrayHare]

From IRS Publication 550: "If you have a total net loss on line 16 of Schedule D that is more than the yearly limit on capital loss deductions, you can carry over
the unused part to the next year and treat it as if you had incurred it in that next year. If part of the loss is still unused, you can carry it over to later years until it
is completely used up."

Perhaps I missed it, but I can find no mention that a CG carryover loss MUST be used against gains the next year. Seems I can elect to not use a carryover, in which case the rules do state that any unused amount can by carried to future years. FWIW, I've done such extended carryovers in the past and the IRS did not complain.

[MichaelB]

You have to fill out the capital loss carryover worksheet and that will force you to book the loss.

[Animorph]

I don't think saving a capital loss carryover does much for you. On the other hand, if you can recognize a capital gain (over and above any loss carryover) in 2012 it could be beneficial. Aside from that case, I wouldn't let any tax change tail wag the investing dog.

Examples:

Loss carryover at start of 2012 is $10k
Assume you will pay 15% CG tax in 2012 and 20% in 2013

1) CG of $5k in 2012, CG of $10k in 2013
$5k against loss carryover in 2012
$5k against loss carryover and $5k * .2 = $1k taxes in 2013

2) CG of $10k in 2012, CG of $5k in 2013
$10k against loss carryover in 2012
$5k * .2 = $1k taxes in 2013

3) CG of $0k in 2012, CG of $15k in 2013
$0k against loss carryover in 2012
$10k against loss carryover and $5k * .2 = $1k taxes in 2013

4) CG of $15k in 2012, CG of $0k in 2013
$10k against loss carryover and $5k * .15 = $0.75k taxes in 2012
$0k * .2 = $1k taxes in 2013

Only in case 4, recognizing the CG all in 2012, saves you anything.

So take your cap gains earlier if they will be larger than your loss carryover. Otherwise it doesn't matter when you take them.

Taking a cap loss for 2012 is the same as taking one in 2013 if it just adds to the loss carryover. Taking it early adds $X to the loss carryover in 2012 which offsets $X in CG's in 2013. Waiting until 2013 to take the $X cap loss offsets $X in CG's in 2013 or later. Same result either way, excluding price changes.

[Animorph]

Yeah, if you could save the carryover for 2013 and take a capital gain in 2012 it would be sweet. But I'm with MichaelB on this one.

[Alan]

Quote:

Originally Posted by Animorph Yeah, if you could save the carryover for 2013 and take a capital gain in 2012 it would be sweet. But I'm with MichaelB on this one.

+1

I think if you have capital gains in a given year you have to book up to $3k of your losses against it. You continue to book your carryover looses every year you have gains until your losses are exhausted.

[Texas Proud]

Quote:

Originally Posted by GrayHare From IRS Publication 550: "If you have a total net loss on line 16 of Schedule D that is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you had incurred it in that next year. If part of the loss is still unused, you can carry it over to later years until it is completely used up." Perhaps I missed it, but I can find no mention that a CG carryover loss MUST be used against gains the next year. Seems I can elect to not use a carryover, in which case the rules do state that any unused amount can by carried to future years. FWIW, I've done such extended carryovers in the past and the IRS did not complain.

Heck, it is in your post...

"you can carry over the unused part to the NEXT year" (not two years from now) "If part of the loss is STILL unused, you can carry it over to later years"... seems pretty simple to me..

As MichaelB pointed out.... notice how it states if you have a loss you must enter it on the form...

Capital Loss Carryover Worksheet—Lines 6 and 14

Keep for Your Records

28% Rate Gain Worksheet—Line 18

Keep for Your Records

Use this worksheet to figure your capital loss carryovers from 2010 to 2011 if your 2010 Schedule D, line 21, is a loss and

(a) that loss is
a smaller loss than the loss on your 2010 Schedule D, line 16, or (b) the amount on your 2010 Form 1040, line 41 (or your 2010 Form
1040NR, line 39, if applicable) is less than zero. Otherwise, you do not have any carryovers.
If you and your spouse once filed a joint return and are filing separate returns for 2011, any capital loss carryover from the joint return
can be deducted only on the return of the spouse who actually had the loss.

1.

Enter the amount from your 2010 Form 1040, line 41, or your 2010 Form 1040NR, line 39. If a loss,
enclose the amount in parentheses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
2. Enter the loss from your 2010 Schedule D, line 21, as a positive amount . . . . . . . . . . . . . . . . . . . . . 2.
3. Combine lines 1 and 2. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
4. Enter the smaller of line 2 or line 3 . . . . . . . . . . . . . . . . . . 4.
If line 7 of your 2010 Schedule D is a loss, go to line 5; otherwise, enter -0- on line 5 and go to
line 9.
5. Enter the loss from your 2010 Schedule D, line 7, as a positive amount . . . . . . . . . . . . . . . . . . . . . . 5.
6. Enter any gain from your 2010 Schedule D, line 15. If a loss,
enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.
7. Add lines 4 and 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
8. Short-term capital loss carryover for 2011. Subtract line 7 from line 5. If zero or less, enter -0-. If
more than zero, also enter this amount on Schedule D, line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
If line 15 of your 2010 Schedule D is a loss, go to line 9; otherwise, skip lines 9 through 13.
9. Enter the loss from your 2010 Schedule D, line 15, as a positive amount . . . . . . . . . . . . . . . . . . . . . 9.
10. Enter any gain from your 2010 Schedule D, line 7. If a loss,
enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.
11. Subtract line 5 from line 4. If zero or less, enter -0- . . . . . . . . 11.
12. Add lines 10 and 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.
13. Long-term capital loss carryover for 2011. Subtract line 12 from line 9. If zero or less, enter -0-. If

more than zero, also enter this amount on Schedule D, line 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13


Now, say you do NOT put down your loss for 2011... then for 2012 you do not have ANY loss carryforward since you did not put anything down on your return.... the starting point is the PY return, not two years prior... and 2011 had a gain... (add a year to all the above if you want to use it for 2013).

[GrayHare]

Thanks for the posts, but so far none of the regs/forms quoted say a carryover MUST be used against gains of the next year. They do state we CAN use them, and also state we CAN carryover unused losses to future years. Since there is no requirement of use, into the forms we enter the amount of loss carryover we are ELECTING to use that year. Any remainder can be carried forward indefinitely.

If there is an IRS reg that says a loss carryover MUST be used against gains in a year, then I've missed it and welcome a quote/reference.

[smjsl]

Quote:

Originally Posted by GrayHare Thanks for the posts, but so far none of the regs/forms quoted say a carryover MUST be used against gains of the next year. They do state we CAN use them, and also state we CAN carryover unused losses to future years. Since there is no requirement of use, into the forms we enter the amount of loss carryover we are ELECTING to use that year. Any remainder can be carried forward indefinitely. If there is an IRS reg that says a loss carryover MUST be used against gains in a year, then I've missed it and welcome a quote/reference.

Say you had a loss in 2009 which you did not report on 2010 forms. Now, if you look at the 2011 form that TexasProud posted, it says on lines 4,5,6,8,9,10 to enter information from 2010 forms, not 2009 forms. So if you enter information from 2009 forms, that would be incorrect...

Update: Just noticed last paragraph in what TexasProud said - I guess I am pretty much repeating that. Bottom line is 2011 form is asking for info from 2010 form. So you MUST use that info, unless you find some instructions text telling you specifically that you can put other numbers on these lines.

Update 2: In case you are still not convinced, here is another quote from Schedule D instructions, Capital Loss Carryover Worksheet:

"Use this worksheet to figure your capital loss carryovers from 2010 to 2011 if your 2010 Schedule D, line 21, is a loss and (a) that loss is a smaller loss than the loss on your 2010 Schedule D, line 16, or (b) the amount on your 2010 Form 1040, line 41 (or your 2010 Form 1040NR, line 39, if applicable) is less than zero. Otherwise, you do not have any carryovers."

Further, at the beginning of the instructions for Schedule D (and form 8949 starting this year) it says use these instructions to ....
- To report a capital loss carryover from 2010 to 2011.

So unless you find other IRS forms to file carryover from 2009 or earlier year to 2011, you have no place to report those on...