A tax question before it's too late

[Badger]

I'm new here and pretty green on financial dealings so please bear with me.

My wife and I are 60 and 61. Most of our savings for retirement are tied up in IRAs and 403bs except for a few stocks we recently purchased with some CD money that matured.

I also have a small amount in a taxable mutual fund. Due to the drop in the market the fund has dropped by about $12k.

We don't have an accountant but use a free service provided by AARP to do our tax preparation the last few years since we can only use standard deduction.

If I was to cash in the taxable mutual fund and take the loss I don't have any other taxable gains to use it for a tax break. If I was to cash it in I would then buy something else while the prices are down.

Now for the big question. Can I use the loss to offset some of my income from work? Can it be used to any tax advantage or am I just out of luck and have to wait for the mutual fund to eventually recover?

Cheers!

 

[LOL!]

You want to do something called "tax loss harvesting". You can search the web or this forum for more info. For example: http://www.early-retirement.org/forums/showpost.php?p=583857&postcount=106

If your net capital gains (i.e. after summing gains and substracting losses) is negative, then you have a net capital loss. You can deduct up to $3000 of the net loss against ordinary income (i.e. your other income) and carryover the excess loss (the part of the loss that exceeds $3000) to next year.

Also, you should probably learn to do your own taxes. They ain't hard if you use software like Taxcut or Turbotax.

 

[OAG]

Tax Act at TaxAct.com is a FREE Tax program which is pretty simple. You can even file electronically free. I have been using it for several years now and have had no problems with it. The pre-release version (for doing 2008 taxes) is available now to "play with" and the final comes out very early in January 2009.

 

[Mike1968]

Thanks OAG,
I missed the Download link for the early 2008TY version. I have used TaxAct for a few years and have had no issues. I haven't ever had to upgrade to the Deluxe version....yet

 

[FIRE'd@51]

I also second OAG's recommendation. I've been using TaxAct to do my Federal taxes for several years now, and think it's great. The price is right, too. I have used TurboTax and TaxCut in the past, and I think TaxAct is every bit as good, at least for my situation.

I do my state taxes for free at my state's web site, which is a breeze once the Federal tax is done.

I built my own tax spreadsheet in Lotus 1-2-3, which I use throughout the year to see where I am for tax planning. In the end TaxAct has always agreed with my spreadsheet to within a dollar (which is probably roundoff), so I know TaxAct must be accurate.

 

[kaneohe]

You want to do something called "tax loss harvesting". You can search the web or this forum for more info. For example: http://www.early-retirement.org/forums/showpost.php?p=583857&postcount=106

If your net capital gains (i.e. after summing gains and substracting losses) is negative, then you have a net capital loss. You can deduct up to $3000 of the net loss against ordinary income (i.e. your other income) and carryover the excess loss (the part of the loss that exceeds $3000) to next year.

Also, you should probably learn to do your own taxes. They ain't hard if you use software like Taxcut or Turbotax.

If you do have excess loss that you have to carryover, be sure you write a big note to yourself on your copy of the return and/or the file folder/envelope it is in so that 1 yr later you/your preparer doesn't forget to include it in the next yr return. Easy to do if you're not into taxes.

 

[Badger]

Thanks for the help. So it looks as if I can sell the shares and apply the $3000 toward reducing income from my salary. Then buy the shares back after at least 31 days or buy something else not too similar. It will also leave some for reducing the following years income too. What a deal!

 

[hogtied]

Let's say you have a $9000 capital loss. You take $3000 this year and $3000 next year. Can you take the remaining $3000 losss the third year or does the loss only carry over for the second year?

 

[kaneohe]

Let's say you have a $9000 capital loss. You take $3000 this year and $3000 next year. Can you take the remaining $3000 losss the third year or does the loss only carry over for the second year?

The loss will carry over until it is used up......and don't forget if you have capital gains in any year, the loss gets to be used against that also so you might use up more than $3000 in a year .

 

[kaneohe]

Tax Act at TaxAct.com is a FREE Tax program which is pretty simple. You can even file electronically free. I have been using it for several years now and have had no problems with it. The pre-release version (for doing 2008 taxes) is available now to "play with" and the final comes out very early in January 2009.

OAG----thanks for the link. It does look like a pretty thorough program, simple and free too. The only thing I found a bit annoying was that you get dragged through the whole (thorough) interview process. I kept wanting to just fill the relevant places like you can do on the HR Block or Dinkytown calculators but I couldn't figure out how to do that.....plus it kept trying to get me to register so it took much longer to get to the end. Can't complain about the price though. Nice to see that it had a stimulus rebate calculation also.

 

[OAG]

OAG----thanks for the link. It does look like a pretty thorough program, simple and free too. The only thing I found a bit annoying was that you get dragged through the whole (thorough) interview process. I kept wanting to just fill the relevant places like you can do on the HR Block or Dinkytown calculators but I couldn't figure out how to do that.....plus it kept trying to get me to register so it took much longer to get to the end. Can't complain about the price though. Nice to see that it had a stimulus rebate calculation also.

You can just pick Form you want to fill out and negate all of the questions and hand holding. Example in the form listing just pick the 1040, start it, and when you enter the lines it will take you to the applicable forms for that entry. However, I would run questions at least once; as a couple of years I almost missed a deduction I did not know I could take.

 

[kaneohe]

You can just pick Form you want to fill out and negate all of the questions and hand holding. Example in the form listing just pick the 1040, start it, and when you enter the lines it will take you to the applicable forms for that entry. However, I would run questions at least once; as a couple of years I almost missed a deduction I did not know I could take.

Thanks. I thought I had figured it out....click forms list on upper right which brings up the forms tree, but when I select a form, I still get dragged thru the interview, perhaps abbreviated to just that form. I did this w/ the online version which, I assumed, would be the same as the downloaded? Might be hopeless to try to reform me, decades-long paper filer and when I do use software, it's form based , just like paper filing. Maybe I'm still missing something here tho......

 

[utrecht]

The loss will carry over until it is used up......and don't forget if you have capital gains in any year, the loss gets to be used against that also so you might use up more than $3000 in a year .

Can someone confirm this? I dont believe its true.

 

[Martha]

Can someone confirm this? I dont believe its true.

Kaneohe is right. Here is a source for you: Publication 550 (2007), Investment Income and Expenses