Tax Offset Rules

Warning: Check all tax laws with your accountant.

You have profits! So, how do you handle the profits and the offsetting losses from trading? If you don’t have more profits than losses, you have not been paying attention and should check out Stock Alert.

The IRS is not concerned about the type of investments that generated your gains or losses. It does not matter if the gains and losses are generated by stocks, bonds, options, futures or selling your comic book collection. Here are the simple rules:

You must match each type of carryover or carry-forward loss to offset the same type of current gain.

• Short term losses against short term gains.

• Long term losses against long tern gains.

After that, you can use any left over losses to offset other categories of gains.

• First, offset current long term gains.

• Second, offset short term gains.

• Finally, any remaining losses can be used to offset $3,000 of this year’s ordinary income.

It is important to remember to repeat this process every year until you write off all of your loss.

Now that you understand the basics of carry forward losses, let you accountant handle the details. And while we are talking about accountants, be sure that you have an accountant that fully understands trading rules (very few do!) or get a referral to an accountant that has stock traders as clients.