How To Buy Stocks Online For Beginners | YEAR END TAX SELLING

How To Buy Stocks Online

It is easy to learn how to buy stocks online and I will show you how

YEAR END TAX SELLING



Its called “tax harvesting” by many: you sell the stocks that have losses so that you can deduct those losses from any gains you have from your winners that you have sold. As long as you have more gains than losses, you can use all your losses to offset those gains. But when you have more losses than gains, things get a bit more tricky.

You are only allowed to take a deduction on your taxes of $3,000 or less for stock losses. So, if you have a big loss and not enough gains to offset that loss, you can only deduct $3,000 and you have to carry the remaining loss over till the next year. In any one tax year, you can only deduct $3,000 in losses and this is a rule that our wonderful US politicians have instituted. They made that rule so that investors will pay more in taxes now, rather than later.

With the stock market having done so well for the last handful of years, many investors have mostly gains in their portfolios. But there are stocks out there that have been real stinkers and you might own one or two of them. Lets say you have a big loss in Under Armour (ticker symbols UA and UAA) and you want to get rid of the stock for taxes. If you have a loss of $20,000 (hypothetical), you can use all of that loss to offset your gains if your gains are $17,000 or greater. But if your gains are less than that, you can only deduct a total of $3,000 from your taxes.

Every end of the year, investors have to figure out what stocks they want to hold on to or what ones they want to sell. Maybe they decide to sell nothing and just stand pat. But often their decision can be influenced by their desire to minimize taxes.

If you do decide to sell a stock just to be able to realize the loss on your taxes, you might want to buy the stock right back again. But alas, the IRS has rules to stop you from doing that as well. Once you sell a stock for a loss, you can’t buy it back again for at least 30 days and if you do buy it back before those 30 days are up, you can’t use that loss on your taxes. Those wonderful US politicians are again responsible for this rule which they put into place to stop investors from selling a stock, claiming the loss, and then buying it right back again. With the 30 day lag, there is a risk that the stock(s) you sell will go up and you will have to buy it back at a higher price, making the investor think twice before trying to implement that strategy.

Year end stock selling for taxes would make the market go down you might think, as investors have a concrete reason to sell their losers. But this hasn’t happened in recent years. The market often goes up in what is called a “Santa Claus Rally” which most often is defined as the last week of the year. Its always curious to me that the market doesn’t go down during that last week as I am more likely to sell during that time period than buy.

No Comments »

No comments yet.

RSS feed for comments on this post. TrackBack URI

Leave a comment

You must be logged in to post a comment.


Copyright 2011 How To Buy Stocks Online