Nightly Topic Post. Tonights topic is reporting tax losses and gains. Firstly, there are two type of gains. Short term and long term gains. Short term are those stocks that you bought and sold within a period of a year or less (most of us here). Long term refers to those that are held for a year or more.
To determine ones gains/losses for the year one can easily calculate it. Granted, your trading venue will furnish you with the documents at the end of the year but I thought I would just kinda sum it up in a Post here. Your cost basis is the amount you invested in a Penny Stock, plus your buy and sell commission. You then take what your proceeds are when you sell a stock and minus the above and that will give you your net gain or loss. Example: You buy ABCD with $500.00 and your buy in fee was $10.00. You then sell it and your proceeds are $420.00 and your sell commission is again $10.00. You lost $80.00 on the stock plus $20.00 with your commissions so your short term gain/loss with this stock would be a loss of $100.00.
If you trade numerous Pennies thru the year it is the cumulative end total that matters and not each individual gain/loss. Your trading venue will send you the documents in January showing your total commissions, total $ buying in and total proceeds you made upon the sales. Everything added up from the year will determine if you had a loss or gain.
If you had a gain for the year, that entire amount is taxable and will be reported. If you had a loss you can deduct up to $3,000.00 off of your your income per year.
One may ask "What if I had a loss of $6000.00 this year"? You can take a Capital loss deduction of $3000.00 this year and then carryover the remaining $3000.00 for next years taxes. With that said, now you have a carryover for the following year of $3000.00 in losses which means if you were to make $3000.00 the following year you would pay no tax as you have the $3000.00 loss carried over from the previous year to offset the following years gain of $3000.00. I know it may sound confusing but the bottom line is you can carry over losses into the future years if they exceed the yearly $3000.00 allowable deduction for losses.
Tomorrow evenings topic will be ?????? I'll think of one. If anyone has any requests please let me know.
AI
