How to Utilize Stock Losses Against Income

There are different ways to receive stock losses each year. Stocks can be inherited, gifted, bought, and sold. If an individual inherits or is gifted stock, and a loss occurs, that individual may yet use the losses on stock. This is the same for any stock that is bought and sold as an individual.

A loss on stock is usable against income; that sounds interesting but how does it work? Whenever stock is sold at a loss it is considered a capital loss. These capital losses deduct first against capital gains, devisable first short-to-short and long-to-long with any excess devisable to the remaining categorical gain. Then, if there are any excess capital losses, those losses, up to $3,000 (unless married filing single $1,500), may adjust ordinary income to get to adjusted gross income.

Note: These losses are for individuals only. Any business with capital losses is only allowed to net capital losses against capital gains. For a business, any excess capital losses is a carryback three years and carryforward five years.

At the end of the year, if an individual is looking at an excess of capital losses or more than the $3,000 (or $1,500) adjustment, then what happens next is that capital losses are carried forward indefinitely. That is right, an individual is allowed to take those excess capital losses to the next year’s capital gains or ordinary income.

Applying the capital loss adjustment to ordinary income is only one of the few ways to save on taxable income. Pugh Tax services can help you figure out the rest! Contact Pugh Tax! ___________ Anthony Pugh, JD, MBA

Email: anthpugh@pughtax.net

Cell: 616-606-8305