Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 02-15-2015, 12:35 PM   #21
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,928
https://books.google.com/books?id=HG...0gains&f=false

see the middle column (exceptions 1 & 2)
If you have a capital loss (which includes a capital loss carryover), exception 1 is not met; therefore exception 2
applies.
__________________

__________________
kaneohe is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-15-2015, 12:57 PM   #22
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,271
Quote:
Originally Posted by kaneohe View Post
English is a funny language that you can bend to support what you want.....

Here is a sentence from IRS:
"The term "net long-term capital gain" means long-term capital gains reduced by long-term capital losses including any unused long-term capital loss carried over from previous years." Tax Topics - Topic 409 Capital Gains and Losses
They tried to make it clear that LTCL here meant carryovers too. They used the word "including" and not the word "and" to suggest that one was inclusive of the other and that they were not non-intersecting entities.

I think the language is clear.... I used the same page... it say you CAN carry a loss forward... not that you MUST...

In a different part it says you MUST report capital gains.... if they wanted to make you carry forward you losses they would have said you must...
__________________

__________________
Texas Proud is offline   Reply With Quote
Old 02-15-2015, 01:08 PM   #23
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 609
Thank you for all the replies. I feel pretty comfortable with the fact that if I have no capital gains transactions (sale of stock/funds) in the year preceding the FAFSA, then I can file the 1040A and take advantage of the Simplified Means Test. This was a planning exercise in that I will not be filing the FAFSA till Jan 2017. This means I have to plan on no fund sales for the entire year of 2016.
__________________
Retired July 2013 at age 49.

Lazy Portfolio Investor:
AA: 55% Stocks
35% Bonds
10% Cash
NanoSour is offline   Reply With Quote
Old 02-15-2015, 01:24 PM   #24
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,928
Quote:
Originally Posted by Texas Proud View Post
I think the language is clear.... I used the same page... it say you CAN carry a loss forward... not that you MUST...

In a different part it says you MUST report capital gains.... if they wanted to make you carry forward you losses they would have said you must...
You have a lot more faith in IRS consistency of language than I do
What do you make of the google books link where exception 2 has :
something about you MUST file Sch D if.............
__________________
kaneohe is offline   Reply With Quote
Old 02-15-2015, 06:17 PM   #25
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,271
Quote:
Originally Posted by kaneohe View Post
You have a lot more faith in IRS consistency of language than I do
What do you make of the google books link where exception 2 has :
something about you MUST file Sch D if.............

Since I did taxes for a few years way back when, I do not have the faith they are consistent... but I do have faith in that is something is required they usually tell you it is....


I would read it the same as I have mentioned... IF I were to elect to take my capital loss carryover I would have to file a Sch D.... If I elected to forgo taking that loss carryover I would not have to file Sch D... since I would not have any capital loss to report... (again, this is if there are no sales during the year)....

Most carry forwards and carry backs are an election of the taxpayer... if the taxpayer does not wish to take advantage of them they do not have to... if you do elect to use them, then there are rules telling you what you must do and you have to follow those rules or lose the carry forward/back...
__________________
Texas Proud is offline   Reply With Quote
Old 02-15-2015, 06:33 PM   #26
Thinks s/he gets paid by the post
sengsational's Avatar
 
Join Date: Oct 2010
Posts: 3,832
Quote:
Originally Posted by kaneohe View Post
https://books.google.com/books?id=HG...0gains&f=false

see the middle column (exceptions 1 & 2)
If you have a capital loss (which includes a capital loss carryover), exception 1 is not met; therefore exception 2
applies.
It's that interpretation of English again... I'd say if you HAVE a capital loss (this year's taxes) that's one thing. If you HAD a capital loss (prior year), that's another. My presumption was that the OP would cease and desist all sales of capital items in the year where the objective was filing a 1040A. If he HAD a capital loss (ie a carry over), then he'd be walking away from that benefit in order for his offspring to get more student loans.
__________________
sengsational is offline   Reply With Quote
Old 02-15-2015, 07:21 PM   #27
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,616
Note that IRS publications are not binding. On something like this, one may wish to consult the actual tax code that the publications try to simplify and present. The tax code itself may address this situation specifically.
__________________
LOL! is offline   Reply With Quote
Old 02-15-2015, 09:14 PM   #28
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,271
Quote:
Originally Posted by sengsational View Post
It's that interpretation of English again... I'd say if you HAVE a capital loss (this year's taxes) that's one thing. If you HAD a capital loss (prior year), that's another. My presumption was that the OP would cease and desist all sales of capital items in the year where the objective was filing a 1040A. If he HAD a capital loss (ie a carry over), then he'd be walking away from that benefit in order for his offspring to get more student loans.

I would argue that if a taxpayer did not want to claim a capital loss then they would not have to file a sch D... the IRS might send a letter to you saying you had a sale, but they also got the loss amount on that 1099... previously they only knew you sold a stock, so assumed that it was all a gain unless you told them otherwise...

BTW, I would respond to the letter if I got one that I did not want to take my loss and was willing to pay higher taxes without doing an amended return...

Your last point is important.... if the taxpayer had a large carryover I would argue that they lost it all since they did not file a sch D and would not have a carryover amount the next year.... my theory would be that the taxpayer made an election to not carry it over to year X so there is no way to carry it to year X+1....
__________________
Texas Proud is offline   Reply With Quote
Old 02-15-2015, 09:43 PM   #29
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 609
Quote:
Originally Posted by NanoSour View Post
Also, I believe I once heard that if you don't file a tax return, you still have to reduce the capital loss as if you took it for each year you don't file. For example, if one did not work for 6 years and had a $20K loss carryover from their last year of employment, one could not file tax returns for the years of not working; however, when they did finally file in the 7th year, the loss carryover would be reduced by $18K (6*3K/year) and would now be $2K. I'm not sure this is correct.
Here's some relevant info from a court case:

Originally Posted by T.C. Memo. 2011-23
Excess net capital losses beyond the $3,000 threshold are treated as either short-term or long-term capital losses in the succeeding taxable year, depending on the character of the capital loss that created the carryover. See sec. 1212(b)(1). To determine the “excess” referred to in section 1212(b)(1), the amount allowed under section 1211(b)(1) or (2) is used in the calculation rather than the amount of the deduction actually claimed in a given tax year. See sec. 1212(b)(2). Therefore, a taxpayer’s capital loss carryover is reduced to the extent a deduction is allowed regardless of whether the taxpayer benefits from the deduction or chooses not to claim the deduction. See sec. 1212(b)(1); Cleveland v. Commissioner, T.C. Memo. 1983-299 (holding that it is not relevant whether the taxpayer claimed any amount of the capital loss carryover in intervening years); see also Rev. Rul. 76-177, 1976-1 C.B. 224 (ruling that a taxpayer must take into account the allowed deduction for purposes of determining the capital loss carryover).
__________________
Retired July 2013 at age 49.

Lazy Portfolio Investor:
AA: 55% Stocks
35% Bonds
10% Cash
NanoSour is offline   Reply With Quote
Old 02-16-2015, 10:41 AM   #30
Thinks s/he gets paid by the post
sengsational's Avatar
 
Join Date: Oct 2010
Posts: 3,832
Quote:
Originally Posted by NanoSour View Post
Here's some relevant info from a court case:
Therefore, a taxpayer’s capital loss carryover is reduced to the extent a deduction is allowed regardless of whether the taxpayer benefits from the deduction or chooses not to claim the deduction.
I'll say one thing for you NS, you have awesome powers of finding-out stuff! Going to the case law seems like an undue burden, at least to me, who gets lost very easily in that kind of thing. My approach, poor as it is, would be to try hard in just the instructions to find a way to interpret that the way I wanted to proceed was not prohibited, and if not, let the chips fall where they may. But that approach would have cost me money in this case, because I would have thought that all of the capital loss carryover would be lost if you skipped one year. But it's only reduced by $3,000!
__________________
sengsational is offline   Reply With Quote
Old 02-16-2015, 11:00 AM   #31
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 5,180
I would think it would be reduced by $3000 + whatever capital gains distribution you have since you would offset that as well.
__________________
RunningBum is offline   Reply With Quote
Old 02-16-2015, 03:54 PM   #32
Full time employment: Posting here.
 
Join Date: May 2011
Location: Marco island
Posts: 813
I think the carryover is reduced by the amount that would have been used if it was claimed. That could be anywhere from zero to the entire carryover amount.
__________________
Gatordoc50 is offline   Reply With Quote
Old 02-16-2015, 04:23 PM   #33
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 609
Quote:
Originally Posted by Gatordoc50 View Post
I think the carryover is reduced by the amount that would have been used if it was claimed. That could be anywhere from zero to the entire carryover amount.
I'm not sure about this one as you would have paid taxes on the gain. This would end up in double taxation on gains. Once when you filed without taking the carryover loss into account, and a second time when you could have taken the loss had you not used it without actually using it.
__________________
Retired July 2013 at age 49.

Lazy Portfolio Investor:
AA: 55% Stocks
35% Bonds
10% Cash
NanoSour is offline   Reply With Quote
Old 02-16-2015, 06:31 PM   #34
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,928
Quote:
Originally Posted by NanoSour View Post
I'm not sure about this one as you would have paid taxes on the gain. This would end up in double taxation on gains. Once when you filed without taking the carryover loss into account, and a second time when you could have taken the loss had you not used it without actually using it.
or you could say it was taxed 1 more time than it should have been......
2x instead of 1. You could say a similar thing about the 3K of income that was taxed instead of sheltered when you gave up the yrs carryover although in that case that thing was taxed 1x instead of 0x so not quite the same thing....
but similar.

I have complete faith in your research abilities tho to find something related to this.......for now, I vote w/ RunningBum &Gatordoc.....
__________________
kaneohe is offline   Reply With Quote
Old 02-17-2015, 01:40 PM   #35
Dryer sheet aficionado
 
Join Date: Feb 2014
Location: Warminster
Posts: 38
OK, I am a tax expert (i.e. CPA) and I usually go to the IRS website for authoritative answers. However, they don't give a lot of advice regarding how to intentionally file your tax return incorrectly. (LOL)

I probably wouldn't have a problem leaving off a CL carryforward of my personal return, because there would be no penalty for overstating your income. However, I would have a problem filing a FAFSA (which is a Federal Form) with knowingly circumventing the rules in order to get financial aid.

The FAFSA does retrieve your tax data directly from the IRS. Whether you report it or not on your tax return, the IRS knows you have a carryforward and will know that you should have reported it. The IRS says that you have a deduction that is "allowed or allowable". This basically means "Use it or Lose it" They will keep track of how much of the carryforward you should have used each year. It is entirely possible that they will send you a CP2000 that advises you that they have made changes to your return.

It is the corrected information that gets reported to FAFSA. I don't know what the penalty for filing a false FAFSA is, but I know at a minimum, it will delay any financial aid that you were planning on getting.
__________________
Jimbo125 is offline   Reply With Quote
Old 02-17-2015, 07:02 PM   #36
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,928
It seems crazy to me that FAFSA would depend on which form you file..... 1040A
or 1040. I would think they would be interested in income and /or assets with perhaps some smooth transition w/o step-function cliffs which lead folks to do avoidance things.
__________________
kaneohe is offline   Reply With Quote
Old 02-17-2015, 08:02 PM   #37
Thinks s/he gets paid by the post
sengsational's Avatar
 
Join Date: Oct 2010
Posts: 3,832
I was surprised by that rule too. My guess is that it's a rough-cut at keeping those that would otherwise have to get a consultant to fill-in the fafsa out of the details. I'm talking about a whole lot of people that don't have investments, are not familiar with terms we all on this site take as obvious. They are every bit as smart, I'm sure, but since they haven't been exposed to tax and investing, giving them an easy-out might be easier for the financial aid folks than dealing with nonsense data in the application, or they might see the complexity and give up.
__________________
sengsational is offline   Reply With Quote
Old 02-17-2015, 10:11 PM   #38
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 609
Quote:
Originally Posted by Jimbo125 View Post
OK, I am a tax expert (i.e. CPA) and I usually go to the IRS website for authoritative answers. However, they don't give a lot of advice regarding how to intentionally file your tax return incorrectly. (LOL)

I probably wouldn't have a problem leaving off a CL carryforward of my personal return, because there would be no penalty for overstating your income. However, I would have a problem filing a FAFSA (which is a Federal Form) with knowingly circumventing the rules in order to get financial aid.

The FAFSA does retrieve your tax data directly from the IRS. Whether you report it or not on your tax return, the IRS knows you have a carryforward and will know that you should have reported it. The IRS says that you have a deduction that is "allowed or allowable". This basically means "Use it or Lose it" They will keep track of how much of the carryforward you should have used each year. It is entirely possible that they will send you a CP2000 that advises you that they have made changes to your return.

It is the corrected information that gets reported to FAFSA. I don't know what the penalty for filing a false FAFSA is, but I know at a minimum, it will delay any financial aid that you were planning on getting.
Thanks for your input Jimbo. In response, I'll say that I'm certainly not trying to circumvent any law in DDs filing of the FAFSA. I'm simply trying to take advantage of the laws as they are written. Please note, I didn't write any of these law regarding taxes or the FAFSA.

For whatever reason, there is such a thing as the Simplified Means Test. I do find it strange that one without any carryover loss can qualify for this test, and its resultant lowered EFC, regardless of total amount of assets. One could have $1M in cash assets and by virtue of no capital gains transactions in a given year can legally file the 1040A thereby eliminating the assets from the EFC calculation.

Another family with a $100 loss carryover and only $500K in assets would get slammed on the FAFSA if legally required to file the 1040 in lieu of the 1040A.

My case is fairly straight forward. I meet the simplified means test requirement of under $50K AGI and without having to file the Schedule D, I can file the 1040A. It seems to me that with only a carryover loss to report and no 1099Bs, you are not required to file the Schedule D. I don't believe any law will be broken if I don't file the Schedule D and file a 1040A. Nor do I believe I'll be circumventing any FAFSA rules by stating I was eligible, and in fact did file a 1040A.

Nano
__________________
Retired July 2013 at age 49.

Lazy Portfolio Investor:
AA: 55% Stocks
35% Bonds
10% Cash
NanoSour is offline   Reply With Quote
Old 02-19-2015, 08:01 AM   #39
Thinks s/he gets paid by the post
sengsational's Avatar
 
Join Date: Oct 2010
Posts: 3,832
Well said, NanoSour, I'm in agreement with all of that; it doesn't look like any laws are broken to me (admittedly only another parent of a college kid trying to wade through the morass).

No matter how much they try, it's impossible to build a set of rules that is even close to 100% fair, and is simple enough for mere mortals to wade through.

Another bit of the FAFSA rules that is unfair is the "tax on savings". For example, say you have two families, each with your proverbial $100 loss. Both families have the same total lifetime earnings record on their social security statement. Family "A" has $500K in the bank and Family "B", spent their savings on new cars every two years, a $250/month cell phone bill, etc, so they have $1K in the bank. The EFC for family "B" will be $28K lower than family "A". So the formula gives an incentive to blow your money rather than save it. That's especially true for kids' assets. If a kid had the $500K, the EFC for one year would be $125K!
__________________
sengsational is offline   Reply With Quote
Old 02-19-2015, 08:32 AM   #40
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,424
Yes, that is true of college aid generally... all else being equal it rewards spenders and penalizes savers.

Like you sengsational, I don't think there is much risk with what NanoSour is thinking of doing. It is unlikely that the IRS will get upset that he is paying more taxes than he is legally required to and filing the "wrong" form in the process.

As long as NS is truthful in his FASFA filing I don't see a lot of risk there and I doubt that they will ask if he should have filed a 1040 rather than a 1040A.

I guess the remaining question is more of an ethical question. As we sometimes said at Mega when we had thorny decisions, could we live with everything that we knew being on the front page of the local paper the next day and still hold our heads high that we had done the right thing in a difficult situation. NS will have to wrestle with that one.
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
How Cap Gains/Carryover Losses impact MAGI under ACA NoMoreJob FIRE and Money 4 10-17-2013 12:59 PM
Poll-Do You Have Capital Loss Carryforwards, Or Investments In A Loss Status? haha FIRE and Money 40 04-16-2011 02:03 AM
Tax Question: Capital Loss Carryover TromboneAl FIRE and Money 30 12-11-2010 08:46 PM
Tax question - Capital loss exceeds income -> no carryover? SecondCor521 FIRE and Money 9 02-15-2010 10:30 AM
Concern re: Job Loss Craig Young Dreamers 15 02-28-2005 11:34 AM

 

 
All times are GMT -6. The time now is 12:47 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.