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Stock Market Loss

Stock Market Loss

Some of the largest investment capitals in the US are put into the Stock market each year and throughout the year, the stocks either rise, fall or stay stable, allowing stock brokers, shareholders and investors a chance to earn revenue and profits via the unpredictability of the market. Yet, the biggest downside with stock investment is its uncertain nature. Stocks can either go really high, taking your modest fortunes up a notch or two, or lately as we’ve seen, ruin fortunes in a day or two of down trading.


Sometimes though, stocks markets can crash as well. The reasons for a stock market crash can be plenty including great uncertainty in the market, political instability around the world, etc. But what does a stock market crash do for the investors? Quite simply, investors have to experience a great loss, largely because they invested an amount in stocks that have depreciated in value. Even if the price is standing at some rate where the investment can be recovered even if the stocks are sold, it would still be considered a loss. 

 

However, we, at David C. Ellwanger, CPA, P.A. see these stock losses differently. Our years of experience and expertise in dealing with traders and investors who have faced stock losses, has made us realize that the picture isn’t as bleak as it seems. There is still light at the end of the tunnel, i.e. there are still ways to bolster your after stock tax returns using a process that is known as capital loss deduction. 

What Does This Concept Entail?

Capital loss deduction is basically a method by which your loss in stocks can be aided and supported by getting extra tax returns. An example will help you understand this. 

Imagine that you are new to the stock market and on your first day, you invest $10,000 in stocks. Then, the stocks that you had invested the money in, fall down and you sell them at $9000. You have just had a loss of $1000. What you can do now is reinvest the rest of the money back into other stocks. 

What you are doing here is that you are keeping yourself in the market with almost the same amount being invested in stocks as the first day, except for a loss of $1000. You can use this to offset your taxable income. In fact, if you do this over a period of time, this could even lead you to incremental tax savings. 

 

This is because, as you kept your amount invested, it means that your cash didn’t move or change in volume. Rather, you only faced a positive change in terms of the cash benefit on the tax return. 

Similarly, there are many ingenious ways through which people turn their stock losses in their favor. There is why people scour the market in depth to find a tax professional to recover stock market loss through taxes

 

The use of such tax professionals and tax accountants ensures that they can make the most of the IRS rules and regulations and tax codes in their favor with regard to the ownership of any asset that you can get a capital gain or a loss on, i.e. when you sell them off in reference to the amount you invested to buy it, initially. Stocks fortunately, are also a part of this. These losses can be claimed and deducted from your overall tax bill as long as they fall within the rules. But how do you determine the capital losses though?

Determining Capital Losses

You can only get your capital losses deducted from your overall tax bill once you know what your losses are. The example provided above is a superficial illustration to only help you understand the concept. But the amount of capital loss for any stock that you own can be found out by a formula. The formula may seem complex, but a qualified tax accountant can handle the situation in the best manner. The formula is to take the amount of shares that have been sold, and to multiply that by the number of times that the cost basis has been adjusted. The total selling price should then be subtracted from the answer.

 

The cost basis price concept is complex and it is best that you find a tax professional for tax deduction of stock losses. To develop a basic understanding, know that a cost basis price is the basis through which you highlight whether you have earned a gain or a loss. This is typically, only adjusted if there was a stock split during the time you owned the stocks. For example, a stock from 2 to 1 could mean that the cost basis of each share would fall well below 50%. 

Getting Your Capital Losses Deducted

Finding out how much of a loss you have had is something that is hard to ascertain on your own. The complexity of the formula makes it important that you use a tax accountant to deal with these issues. Once you know the capital losses that you have suffered as a result of a stock market crash, or because of the bankruptcy of the company whose shares you were holding, you will need to get these stock losses deducted. 

 

To get these losses deducted, you will need to fill out the Form 8949 and the Schedule D. These forms are specially designed to deal with this purpose and it is best that you find a tax preparer to help you fill it out. Your losses in stocks can either be classified as short term capital losses or long term capital losses. Short term capital losses are calculated against short term capital gains and long term losses are calculated against long term capital gains. 


Part 1 of the form deals with short terms loans and part two of the form deals with long term loans.  Tax accountants, like the ones we have at our firm, will be able to help you decide where your stock losses should lie. The figure of the loss, as any tax accountant will tell you, needs to be written down on the Schedule D tax form. 

 

But all of the above highlights how difficult it is for you to file your taxes and get your stock losses deducted from your tax bill without finding a tax professional for deduction of stock losses. Hence, find a tax preparer or a tax accountant to help you deal with your stock loss deduction to not only save time, but also save yourself from the stressful hassle of the process.  To reach out to us, just click the link below and we can help you today!