If you lost money in the stock market in 2014, or if you have capital loss deductions from 2013 that carry over to 2014, look at your actual (or possible) 2014 sales of capital assets (stocks, real estate, etc) before the year is over.
Long-term capital losses — from sales of items held more than one year — are used to offset long-term capital gains. If the result is a net loss, then the excess can offset short-term capital gains.
Also, short-term capital losses — from sales of items held less than one year — are first used to offset short-term capital gains, with the excess used to offset long-term capital gains.
If the capital loss still is more than your capital gains, then it is allowed to be a deduction against other income (interest, dividends, wages, retirements, etc), but only $3,000 a year. The excess capital loss is not lost, it carries over to 2015 and future years.
One of the first steps in this planning is to know how much you have in capital gains and losses for 2014 sales and what carry over of losses you have from 2013. Then look at your holdings and see if there are items you might sell in 2014 to have more gains or losses.
Long-term capital gains have special tax rates, depending on your taxable income. If your income is low enough to only have income taxed at 10 percent or 15 percent, then the tax rate is usually only zero.
If your income is low enough to have some long-term capital gains and still not have so much taxable income you exceed the 15 percent tax rate, maybe you might consider selling something that has a long-term capital gain.
However, remember the taxation of Social Security benefits depends on your gross income (AGI-bottom line on Page 1 of form 1040). If you recognize say $10,000 of long-term capital gains, you probably will find the taxable portion of Social Security benefits also increases. It is helpful to do a draft return to see what might be done or not done to take advantage of the zero capital gains tax rate.
The stock market goes up and goes down all the time. Choosing when to sell may also be important. But it is better to have a gain or profit than getting a tax deduction.
High income taxpayers who are not age 65 yet may find other planning is important. Their long-term capital gains are taxed at 20 percent (not 15 percent) if they have enough income to be in the 39.6 percent regular tax rates. Again, doing a draft return of what might be the 2014 result can help in planning for the lowest total tax.
Did you hear? “Let go of what you don’t need. Don’t hold on to people, circumstances and things that aren’t bringing value to your life.”
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.