US Investment / Tax Questions

[obsidian]

Example 1:

You buy Stock A for $50,000. 5 years later the initial Stock A investment is now worth $150,000 around August. You sell Stock A and now have realized capital gains of $100,000. Let's assume you now owe the IRS $20,000.

1 week later you change your mind and buy back +/- the same number of Stock A shares worth $150,000. On December 31st the price remains unchanged and your shares are still worth $150,000.

A little over a month later, in early February of the next tax year, Stock A shares plummets down to zero. Your investment value is now worth $0.

Questions:
Do you still have to pay $20,000 in taxes to the IRS even though you actually already lost $50,000 from your initial investment? That would bring your total losses to $70,000?

Example 2:

Buy Stock A for $50,000. 5 years later the initial Stock A investment is now worth $150,000 around August. You sell Stock A and now have realized capital gains of $100,000. Let's assume you now owe the IRS $20,000.

1 week later you change your mind and buy back +/- the same number of Stock A shares worth $150,000. A little over 5 years later you still hold your Stock A shares. Your Stock A shares have now increased to $500,000.

But a few months later, the Stock A share price crashes to zero because of a black swan event. Your investment value is now worth $0.

Questions:
You already paid the IRS $20,000 almost 5 years prior. But since then you held your Stock A shares which you repurchased 1 week after you sold which triggered the taxable event. How much of a loss can you claim? $50,000? $70,000? $500,000? $570,000? You will never get your $20,000 back that you paid the IRS 5 years ago correct? If so your total losses equal $70,000 because you never went back to dollars? You're out your original $50,000 investment and the $20,000 that you paid the IRS 5 years ago.

[Mayday]

It’s standard globally that Transactions are done in a financial year.

I hope you are ok.

I have warned many times about the exact pitfall you speak of which has caught out a stack of crypto people.

If you sell and buy back but it goes down, you sell before the close of that financial year and claim the loss against the gains. That is the best you can do. Once the year closes, it’s a new transaction.

[obsidian]

It’s standard globally that Transactions are done in a financial year.

I hope you are ok.

I have warned many times about the exact pitfall you speak of which has caught out a stack of crypto people.

If you sell and buy back but it goes down, you sell before the close of that financial year and claim the loss against the gains. That is the best you can do. Once the year closes, it’s a new transaction.

Thanks Mayday! I am ok. I am still comfortably in the green as far as crypto goes because my entry point was low. What would hurt me is if the US government keeps up its harassment of Binance and it somehow causes an FTX type collapse. I have crypto on Binance.us, and Coinbase also. I know I should move it but that is just inconvenient for fucks sakes! If something happens to Binance I will blame the US government. The whole thing is geopolitical. Binance.us is also such a tiny fraction of global trades - it is insignificant. Hopefully, Binance itself will prevail against the BS coming their way from the useless Biden regime. They are just pissed off that their DNC donor SBF was not bailed out by CZ. And the little cockroach was badmouthing him also. What a turd!

https://www.vanityfair.com/news/2023/09/binance-founder-cz-says-sbfs-decision-to-bad-mouth-him-to-us-authorities-was-not-smart

[Mayday]

Good to hear you are ok. Regardless of differing opinions it still matters none of us get in a spot of bother.

Australia major banks have cut off Binance. It’s dead here now.

My view:
BTC peak around April 2024
Bear market
BTC peak mid-late 2027

It’s getting harder to enter crypto, not easier. So assume that continues which means for ETH people you will want to support KYC in metamask and defi exchanges.

[OneMoreRep]

Example 1:

You buy Stock A for $50,000. 5 years later the initial Stock A investment is now worth $150,000 around August. You sell Stock A and now have realized capital gains of $100,000. Let's assume you now owe the IRS $20,000.

1 week later you change your mind and buy back +/- the same number of Stock A shares worth $150,000. On December 31st the price remains unchanged and your shares are still worth $150,000.

A little over a month later, in early February of the next tax year, Stock A shares plummets down to zero. Your investment value is now worth $0.

Questions:
Do you still have to pay $20,000 in taxes to the IRS even though you actually already lost $50,000 from your initial investment? That would bring your total losses to $70,000?

Example 2:

Buy Stock A for $50,000. 5 years later the initial Stock A investment is now worth $150,000 around August. You sell Stock A and now have realized capital gains of $100,000. Let's assume you now owe the IRS $20,000.

1 week later you change your mind and buy back +/- the same number of Stock A shares worth $150,000. A little over 5 years later you still hold your Stock A shares. Your Stock A shares have now increased to $500,000.

But a few months later, the Stock A share price crashes to zero because of a black swan event. Your investment value is now worth $0.

Questions:
You already paid the IRS $20,000 almost 5 years prior. But since then you held your Stock A shares which you repurchased 1 week after you sold which triggered the taxable event. How much of a loss can you claim? $50,000? $70,000? $500,000? $570,000? You will never get your $20,000 back that you paid the IRS 5 years ago correct? If so your total losses equal $70,000 because you never went back to dollars? You're out your original $50,000 investment and the $20,000 that you paid the IRS 5 years ago.

Example A: Yes, you owe long-term capital gains tax on the realized gains following the sale. Yes, you also have a loss equaling the initial dollar amount invested + capital gains tax paid on the sale.

Example B: Yes, you owe long-term capital gains tax on the realized gains following the sale. No, you can not write off the loss on unrealized gains. Your loss had to be realized. In other words, you need to have sold your stock to claim a deduction. You can't simply write off losses because the stock is worth less than when you bought it.

Tax loss harvesting works a little different to the scenario you presented. In order for you to employ the tax loss harvesting option, you actually had to sell some of your stock(s) at a loss and use those losses to offset some (possibly all), of the capital gains from the stock(s) that you sold at a profit.

"1"

[Thin Lizzy]

As OMR said, you still owe the tax for the prior year’s gain and you can write off the loss for the current  year but only 3K and you can carry over the remainder of the loss into the future at 3k a year until the whole amount is written off.

The IRS is your partner when things are going well; not so much when it goes bad.

[Humble Narcissist]

As OMR said, you still owe the tax for the prior year’s gain and you can write off the loss for the current  year but only 3K and you can carry over the remainder of the loss into the future at 3k a year until the whole amount is written off.

The IRS is your partner when things are going well; not so much when it goes bad.

Just follow the Wesley Snipes tax plan.

[obsidian]

Example A: Yes, you owe long-term capital gains tax on the realized gains following the sale. Yes, you also have a loss equaling the initial dollar amount invested + capital gains tax paid on the sale.

Example B: Yes, you owe long-term capital gains tax on the realized gains following the sale. No, you can not write off the loss on unrealized gains. Your loss had to be realized. In other words, you need to have sold your stock to claim a deduction. You can't simply write off losses because the stock is worth less than when you bought it.

Tax loss harvesting works a little different to the scenario you presented. In order for you to employ the tax loss harvesting option, you actually had to sell some of your stock(s) at a loss and use those losses to offset some (possibly all), of the capital gains from the stock(s) that you sold at a profit.

"1"

Thanks for your reply. That's what I suspected. In the future, if I convert to cash I will stick to my guns and keep most of the cash. Just too risky otherwise.

[obsidian]

As OMR said, you still owe the tax for the prior year’s gain and you can write off the loss for the current  year but only 3K and you can carry over the remainder of the loss into the future at 3k a year until the whole amount is written off.

The IRS is your partner when things are going well; not so much when it goes bad.

Lol, yes that's what I gather. That's why all these day traders make me scratch my head. I can just imagine how complicated their taxes must be. Seems like a nightmare. I would rather dig ditches than go through all that shit.

[Rambone]

Just follow the Wesley Snipes tax plan.

always bet on black and never pay the tax

[OneMoreRep]

Lol, yes that's what I gather. That's why all these day traders make me scratch my head. I can just imagine how complicated their taxes must be. Seems like a nightmare. I would rather dig ditches than go through all that shit.

Its can get pretty tricky come tax time.

Many of them owe back taxes, end up getting audited and sometimes worse.

Others have special software available that keeps track of the various sales, profits, losses and gives them ballpark figures of what they likely owe.

A lot of them also have accountants that help them with quarterly tax filing.

"1"

[Thin Lizzy]

Lol, yes that's what I gather. That's why all these day traders make me scratch my head. I can just imagine how complicated their taxes must be. Seems like a nightmare. I would rather dig ditches than go through all that shit.

The capital gains form, Schedule D is not set up to handle that many trades and I doubt any agent would go through them individually. So, if you just do the totals from your brokerage statement and include a copy of the statement itself, the IRS is probably not gonna come after you as most day traders lose money anyway and there isn’t any tax to collect.

[_bruce_]

The IRS hotline(1-800-evasion) opined that taxes should be avoided at all cost.

[Humble Narcissist]

always bet on black and never pay the tax

Yep, and you get rewarded with free room and board.

[obsidian]

The IRS hotline(1-800-evasion) opined that taxes should be avoided at all cost.

Paying taxes is just a suggestion (optional).... 

[obsidian]

The capital gains form, Schedule D is not set up to handle that many trades and I doubt any agent would go through them individually. So, if you just do the totals from your brokerage statement and include a copy of the statement itself, the IRS is probably not gonna come after you as most day traders lose money anyway and there isn’t any tax to collect.

Ok, thanks for the advice.

[obsidian]

Its can get pretty tricky come tax time.

Many of them owe back taxes, end up getting audited and sometimes worse.

Others have special software available that keeps track of the various sales, profits, losses and gives them ballpark figures of what they likely owe.

A lot of them also have accountants that help them with quarterly tax filing.

"1"

Thanks OMR. If I ever start active trading I'll try to stay on top of tax documentation so it does not get out of hand.