Deducting Big Losses a Lengthier Process Than Racking Them Up
Question: At the beginning of this year, I quit my engineering job and began day-trading stocks full time. I lost more than $65,000. All my trades were short term, held for no more than a day. I am married and have been filing joint returns for 20 years. My wife has an income of about $120,000. Can we deduct my $65,000 loss as ordinary income? If I can, what form is needed? Thank you for your early reply.
Answer: You're still married, huh? Will wonders never cease?
You can deduct your losses--but only $3,000 a year. So in about 22 years, you should be out of the doghouse.
That's an oversimplification, of course. You can "carry forward" your excess losses, using them to offset capital gains in future years. But given your incredible sense of timing when it comes to investing, you shouldn't depend on future profits to bail you out.
There is a small silver lining here. Because you went at this quixotic business full time, you probably can write off your investment-related costs--Internet connection, newspaper subscriptions and the like--as business expenses on a Schedule C. To qualify to file a Schedule C, you must have proof that your trading was a full-time business activity in which you actively and continually bought and sold securities for your own account, said Mark Luscombe, analyst for CCH Inc., a tax research firm. Your trading records and your lack of other employment should provide ample proof.
Regular investors--that is, those who still have jobs--can write off investment expenses, too, but they must use a Schedule A and may deduct only expenses that exceed 2% of their adjusted gross income.
Which, when you think about it, isn't such a bad deal after all. At least those folks won't be begging their spouses' forgiveness for the next two decades.
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Having Too Much Cash Is Wonderful Problem
Q: Is it possible to over-invest in retirement accounts? My spouse and I earn $175,000. He's 38, I'm 30. We own a modest home, maintain an emergency cash account, have no debt and max out our 401(k)s and IRAs. After investing more than $20,000 a year in retirement accounts, we find ourselves with excess cash and are confused about what to do with it. We don't want to squander it, but we really don't want any more exposure to stocks. What advice do you have for a couple who want to continue building wealth but who aren't sure how to take further advantage of our hard-earned money at this juncture?
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