December 16, 2009
Like everything to do with taxes, capital gain & loss taxation carries plenty of fine print. Here it is in plain English:
A "realized" gain or loss is from something you have sold and must be reported to the IRS. "Unrealized" means it's something you still hold and so no tax is due nor deduction claimed. You may add together your realized gains and losses and if you have more gains you pay tax on them. But if it's the other way around - more losses than gains - only $3000 of net losses may be deducted in any one year. Losses in excess of $3000 are "carried forward" meaning you may deduct them in future years at a max of $3000 per year until they are fully deducted.
If you have a gain on assets held less than 12 months it is a short-term gain and is taxed liked ordinary income (wages, interest, etc), but gains on securities held more than 12 months are long-term gains and taxed at lower rates (typically 15%). There are different rates for some special asset classes (certain real estate, collectibles, small business stock) but in general you will pay either zero or 15% on your long-term gains this year depending on your income.
There's more, of course. With the IRS there's always more, but there's a limit to how much is useful at any time and this is about it. Tax time is coming and if you don't want to struggle with the Byzantine complexities, talk with our tax department. They are friendly and, more important, highly skilled, and they will handle your tax filing expertly and relieve you of anxiety.
Watch for my upcoming series on the critical do's and don'ts for your retirement savings.
George T. Conboy
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).