Year-End Tax Considerations
For many investors, 2008 will be a year to forget: With all three major indexes down close to 40% this year, investors are left nowhere to hide. However, if you suffered big losses from your investments in 2008, there are tax moves that you can take to ease the pain.
Early this month, I read an article on The Wall Street Journal that discussed some year-end tax considerations. Two items in the article are directly related to your investments:
- Write off your losses: By getting rid of your losers after a dismal year, you can offset any capital gain from selling winning stocks/funds or from dividend or capital gain distributions. Even though stocks and funds are most likely to lose money this year, many will still make distributions that are subject to taxes. And if you have big losses (exceeding the $3,000 limit) this year, you can even carry them over to 2009 and beyond, depending on the size of your losses.
- Deal with worthless stocks: Have your bought any stocks in 2008 that are now worthless? As matter of fact, I did have a few in this category, including Washington Mutual (WM) and Freddie Mac (FRE). On one hand, it’s unfortunate that these stocks aren’t worth anything now. On the other hand, it’s lucky that I didn’t bet too much on them, so the losses are tolerable. But for those stocks, what should I do with them? For me, since I bought them in my regular, taxable brokerage account, I can declare them as “worthless” on Schedule D of Form 1040, according to the article. That’s what I am going to do
As there are only three days left for 2008, are you planning to do any adjustments for your investments for tax reasons?
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