|
Posted by R. C. White on December 15, 2007, 10:03 pm
Please log in for more thread options Hi, Bernie.
> Now I'm just trying to decide if it is worthwhile to take a loss on a
> different stock to offset some of the gain.
Probably not! But I'd have to know a lot more about your whole tax
situation, not just your capital gains/losses, to advise on that. (And I'd
have to spent a LOT of time catching up from the tax environment I knew 15+
years ago. Even if I could remember what I knew then, much of it is not
true anymore. And, of course, I'd need to requalify and renew my permit to
practice public accounting.)
But, as a no-longer-expert, I can remind you of a couple of points.
First, capital gains rates are some of the best rates available. Don't
waste them without a good reason. Capital losses can be deducted from your
ordinary income, but only after reducing capital gains to zero. Tax rates
on ordinary income are usually the highest in the book. I barely know what
the rates are these days, but I think those principles still apply.
You said you "sold some stock at considerable profit". Does that mean a
thousand dollars, a million dollars, or some other number? What some of us
call "considerable", others consider pocket change. I'm not asking you to
disclose anything here, just pointing out that "considerable" does not give
an adviser any hook at all on which to hang his advice.
But a quick example might illustrate the basic point. Suppose you are
always in the maximum tax brackets - rounded to 40% for illustration.
Suppose you sold stock at a $3,000 gain and that the gain qualifies for the
15% tax rate, so the tax would be $450. You have stock that is down $3,000
and you are thinking of selling it to reduce that part of your tax bill to
zero, saving tax on $3,000. But if you take that loss next year, when you
expect no capital gains, you can deduct it from ordinary income and save
40%, or $1,200. So by letting this year's tax bill be $450 higher, you can
reduce next year's bill by $1,200. (And you don’t have to sell to get the
cash to pay this year's taxes until April 15 of next year.) That sounds
like good planning to me - MAYBE!
There are few "simple" tax situations when we consider all the factors in a
return. Would the capital gain trigger the Alternative Minimum Tax for
either year? How much might that be? Will your ordinary income fluctuate
much between the years? How will that effect taxes for the two years? Do
you have a lot of deductions that might go to waste in either year if your
AGI is too high or too low in that year? (Remember that we pay taxes on
TAXABLE income, which is AFTER deductions and exemptions, NOT on gross
income for the year.) Nobody can adequately advise you - or any taxpayer -
without knowing all these factors and taking them into consideration.
The general rule is that a taxpayer with level income over several years
will pay less total tax than if his income fluctuates wildly from year to
year, even if the average income for all those years is the same. We want
to take income from the highest brackets in one year and move it into a
lower bracket in another year, when we can. Picking the best time to
realize a capital loss is one method that we can use. It generally is a bad
idea to offset capital gains with capital losses in the same year. But I
said, "GENERALLY"!
If the gain was "considerable" to you, then it probably is worth paying a
"considerable" fee for competent advice on how to handle it.
RC
--
R. C. White, CPA
San Marcos, TX
(Retired. No longer licensed to practice public accounting.)
rc@grandecom.net
Microsoft Windows MVP
(Currently running Quicken 2008 Deluxe in Vista Ultimate x64)
> Hi RC. Thanks for the input. What you say is my understanding and my
> experience. I have trouble imaging that the Premier "extra guidance"
> would be useful for me, but this is the first year I've even thought about
> it. I sold some stock at considerable profit and hadn't considered the
> tax implications - I'll probably need to sell more to pay the capital
> gains taxes (nice problem to have). I doubt that their guidance can make
> any difference. Now I'm just trying to decide if it is worthwhile to take
> a loss on a different stock to offset some of the gain.
>
> Bernie
>
> On 12/14/2007 5:08 PM, R. C. White wrote:
>> Hi, Bernie.
>>
>> I bought the Basic version of TurboTax again for 2007. ALL the
>> functionality to actually prepare the returns is in there.
>> More-expensive versions add nice-to-have extras, but don't add anything
>> to the actual preparation of the return.
>>
>> If you look at the comparison chart (on the back of the box for any
>> version - and in other places), you will see that Deluxe adds It's
>> Deductible and the Audit Risk Meter - but neither of those is required to
>> file your return. Premier adds advice and explanations ("Extra guidance
>> for investment sales..."), but no extra forms are provided - or required.
>>
>> Some years ago the Deluxe version included IRS Publications; I'm not sure
>> if it still does. The pubs and other literature were always available
>> free from the IRS, but it was worth something to have them at our
>> fingertips. They are all available online now, and with a broadband
>> connection, it's almost like having them on our own computer.
>>
>> The Home & Business version does add some features for Sole Proprietors
>> and Self-Employed that just might be worth the extra bucks, but I've
>> never used that version, so I can't comment on the actual worth of those
>> features. The Expanded Schedule C Guidance might be worthwhile. And it
>> says it will "Create W-2 and 1099-MISC forms for your employees and
>> contractors". If you pay helpers, this feature alone should be worth the
>> price of the whole package - unless you already have such chores covered
>> by other software or a bookkeeper or accountant. I don't see any mention
>> of depreciation calculations.
>>
>> Of course, my years of experience in the tax field - and my
>> now-simplified tax situation - might make the added advice features less
>> valuable to me than to most taxpayers. Only you can decide what they are
>> worth to you.
>>
>> RC
| 
Yahoo! 
Google 
Windows Live 
del.icio.us 
digg 
Netscape 
XML Sitemap