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Started By
Message
When to just sell worthless stocks at a loss for tax purposes?
Posted on 5/10/21 at 6:53 am
Posted on 5/10/21 at 6:53 am
The thread about cyrpto gains had a comment that made me think. First off, I'm very much a novice in the financial/tax space so epxlaining like I'm 5 on some of this may be generous, let's say like I'm 4 to be safe.
Anyways...in the last 5 months I've used some play around money in my brokerage account to buy some smaller priced things in the hopes that they'd eventually take off, some short term hope and some I originally planned to hold for years. But at this point I'm kind of tired of them just sitting there and am mentally ok with missing out on massive potential futurue gains at the expense of wanting to just not have to think about them anymore and put them somewhere now that I feel more comfortable with. With investing I've aaaaalways bene a long term buy and hold kinda guy, so this was just a fun experiment that I realized I'm not cut out for ha.
Which leads me to my main question here. The handful in question that I'm talking about if I sold today would all be at a loss. Some at a small loss, like less than a hundred bucks, some losses in the high 3 digits. Remembering that I know nothing about the topic, would it be advantageous to just go ahead and sell them, take some money back, and report the capital losses on my taxes? I tried to do a little googling but even the basic articles didn't help. I understand the basic premise of "if you report capital losses in your taxes it will help offset your capital gains"...that obviously makes sense but it also always points out "be sure to do this only when it's most tax efficient for you!" which isn't helpful at all since I have no clue when that would be. I also know they would be short term-losses which I think is generally less advantageous anyway than long term losses.
I guess to put it even more simply...is there ever a definitely good or definitely not-preferred time to just go ahead and sell at a loss for the purpose of including on your next year tax return?
Anyways...in the last 5 months I've used some play around money in my brokerage account to buy some smaller priced things in the hopes that they'd eventually take off, some short term hope and some I originally planned to hold for years. But at this point I'm kind of tired of them just sitting there and am mentally ok with missing out on massive potential futurue gains at the expense of wanting to just not have to think about them anymore and put them somewhere now that I feel more comfortable with. With investing I've aaaaalways bene a long term buy and hold kinda guy, so this was just a fun experiment that I realized I'm not cut out for ha.
Which leads me to my main question here. The handful in question that I'm talking about if I sold today would all be at a loss. Some at a small loss, like less than a hundred bucks, some losses in the high 3 digits. Remembering that I know nothing about the topic, would it be advantageous to just go ahead and sell them, take some money back, and report the capital losses on my taxes? I tried to do a little googling but even the basic articles didn't help. I understand the basic premise of "if you report capital losses in your taxes it will help offset your capital gains"...that obviously makes sense but it also always points out "be sure to do this only when it's most tax efficient for you!" which isn't helpful at all since I have no clue when that would be. I also know they would be short term-losses which I think is generally less advantageous anyway than long term losses.
I guess to put it even more simply...is there ever a definitely good or definitely not-preferred time to just go ahead and sell at a loss for the purpose of including on your next year tax return?
4
Posted on 5/10/21 at 7:10 am to WG_Dawg
Do you have any capital gains yet this year to offset? For tax purposes short term gains are cancelled with short term losses and same goes with long term. After that the short term can be used to off set long term if there’s not an even match. If you already have locked in capital gains for the year id at least sell losses that matched that. You can also report up to 3k in additional losses once all your losses are cancelled out by your gains.
Posted on 5/10/21 at 7:18 am to tigersfan1989
quote:
Do you have any capital gains yet this year to offset?
Yeah by the time 2021 ends I will definitely have capital gains, some short and some long.
quote:
For tax purposes short term gains are cancelled with short term losses and same goes with long term.
Ok good to know. So if I bought and sold Stock A in 2021 and made a profit of say $300, and am holding Stock B bought in the same year and it has losses of a few hundred and I hate it and don't want to keep it around anymore, I can sell at the loss and it would more or less offset the STCG from Stock A? Meaning I basically wouldn't owe CGT on that? That would be to my advantage I assume.
quote:
If you already have locked in capital gains for the year id at least sell losses that matched that
Gotcha, would this be the biggest general takeaway on the topic? Basically, "if you've got a set number of capital gains, it would be a good idea [if you desire to, not necessarily you have to or necessarily SHOULD] to report CG losses as well as close to the gains?"
Posted on 5/10/21 at 7:26 am to WG_Dawg
Yea so a 1k realized loss offsets a 1k gain resulting in no taxes. Apart from realizing the gain or loss if you feel that the stock has no upward potential then sell it and move on. I sold a few loss positions so far this year for this exact same reason. I had gains already in other sales plus I did not see the loss positions I was in improving any time soon
Posted on 5/10/21 at 7:32 am to tigersfan1989
thanks, this is great to know!
Like I said I've alwasy been a long term hold guy and have only recently started throwing some extra play/fun money on little shite that I hoped may do well, although most have not lol. I have been of the mindset of "well I doubt it's going anywhere, but I hate to sell and just throw money down the toilet on it, so I guess I'll just hang on in case it does somethign". Now I will definitley feel better about selling to help offset gains on the things that have done well.
Like I said I've alwasy been a long term hold guy and have only recently started throwing some extra play/fun money on little shite that I hoped may do well, although most have not lol. I have been of the mindset of "well I doubt it's going anywhere, but I hate to sell and just throw money down the toilet on it, so I guess I'll just hang on in case it does somethign". Now I will definitley feel better about selling to help offset gains on the things that have done well.
Posted on 5/10/21 at 7:35 am to WG_Dawg
sorry one last question I had. We've mainly been talking about reporting capital losses to offset gains, being that gains would of course be higher.
What happens in the undesirable hypothetical event that your capital losses are way more than your gains? Hopefully I'm not ever in that situation but how does that work for taxes?
What happens in the undesirable hypothetical event that your capital losses are way more than your gains? Hopefully I'm not ever in that situation but how does that work for taxes?
Posted on 5/10/21 at 7:37 am to WG_Dawg
Did you also get hosed believing in that nut Ancient Tiger?
Posted on 5/10/21 at 7:41 am to WG_Dawg
If you gains and losses result in a net loss then the irs will let you claim up to 3k. So if you have 10k gain 15k loss then 2k of your losses aren’t tax deductible. The irs loves their taxes when you make money and doesn’t care to help you out on any breaks once you lose more than 3k net loss in a year
Posted on 5/10/21 at 8:01 am to WG_Dawg
quote:
What happens in the undesirable hypothetical event that your capital losses are way more than your gains?
https://www.investopedia.com/terms/t/tax-loss-carryforward.asp
Posted on 5/10/21 at 8:01 am to WG_Dawg
Typically people will offset gains with losses in years they have greater gains. This is not a bad idea at all and if you really think you will not be trading individually in future years then go ahead and get the losses in now.
But if you think there is a chance in the future you will keep doing this, even in small amounts I would hold on to it since the current administration has made it very clear they plan on raising rates in the near future.
But if you think there is a chance in the future you will keep doing this, even in small amounts I would hold on to it since the current administration has made it very clear they plan on raising rates in the near future.
Posted on 5/10/21 at 8:49 am to WG_Dawg
First off as a tax guy I tell my clients to never let the tax tail wag the dog. Meaning, don't sell stinkers just because they will create capital losses.
However, if you have non-tax reasons for selling stinkers (you've lost faith in them, you don't want to deal with it anymore, etc) then selling them for a loss is at least a bit of a benefit.
If your total losses exceed total gains by more than 3K per year, those losses carry over to next year (and the next, etc). Those losses don't expire until you expire.
However, if you have non-tax reasons for selling stinkers (you've lost faith in them, you don't want to deal with it anymore, etc) then selling them for a loss is at least a bit of a benefit.
If your total losses exceed total gains by more than 3K per year, those losses carry over to next year (and the next, etc). Those losses don't expire until you expire.
Posted on 5/10/21 at 5:22 pm to WG_Dawg
One thing is do not sell a stinker stock only to repurchase within 30 days. That would be considered a wash sale and you will not be able to write off the loss.
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