Be Careful About Taking Tax Losses: Avoid the Wash Sales

by Fred Fuld III

A wash sale is a situation in tax law where you sell a security at a loss and then repurchase the same or a substantially identical security within a specific timeframe, typically 30 days before or after the initial sale. This repurchase triggers the wash-sale rule, preventing you from claiming the capital loss on your tax return for that year.

Here’s why wash sales are important to investors:

Reducing Tax Liability:

  • Investors often use tax-loss harvesting to offset capital gains with capital losses, thereby reducing their tax liability. A wash sale unintentionally negates this strategy, as the disallowed capital loss cannot be used to offset other gains.
  • This can lead to a higher tax bill than anticipated, especially for active investors who frequently buy and sell securities.

Investment Strategy:

  • The wash-sale rule encourages investors to make well-considered investment decisions based on long-term goals and market fundamentals, rather than short-term tax benefits.
  • It prevents artificial manipulation of tax returns and promotes responsible investing practices.

Understanding the Rules:

  • The wash-sale rule applies to most securities including stocks, bonds, mutual funds, ETFs,and options.
  • The disallowed capital loss is not lost forever, but instead, it is added to the cost basis of the repurchased security. This will reduce the capital gain (or increase the capital loss) when you eventually sell the security again.
  • There are some <strong>exceptions and complexities</strong> to the wash-sale rule, so it’s crucial for investors to consult with a financial advisor or tax professional to ensure they understand the full implications.

Overall, wash sales are an important aspect of tax law that investors need to be aware of to optimize their tax strategy and make informed investment decisions.

Here is an additional resource that you may find helpful:

IRS Urges Taxpayers to Claim Over a Billion in Refunds before Deadline

The Internal Revenue Service (IRS) has issued a public announcement on June 8, 2023, calling on approximately 1.5 million individuals to promptly file their tax returns to secure over $1.5 billion in refunds. These refunds pertain to the 2019 tax year, and the deadline for submission is set for July 17, 2023.

The majority of eligible recipients are individuals with modest incomes who have yet to file their 2019 tax returns. Numerous taxpayers qualify for potential refunds, with the average refund for 2019 amounting to about $900.

Commissioner of the IRS, Danny Werfel, emphasized the time-sensitive nature of the situation, stating, “We are quickly approaching the deadline for over a million individuals to claim their 2019 tax refunds. Given the impact of the pandemic, many people may have unintentionally overlooked filing their tax returns for that year. We want to ensure that no one misses the opportunity to receive their well-deserved refund. We strongly encourage individuals to review their records and take prompt action before the deadline. The IRS offers various avenues of assistance to facilitate the process.”

Typically, taxpayers have a three-year window to file their returns and receive their refunds. However, due to the delay caused by the pandemic, the deadline for the 2019 tax year has been extended from the customary April 15 to July 17, 2023. To be eligible for a refund, taxpayers must ensure that their tax returns are addressed, mailed, and postmarked no later than July 17.

In addition, low and moderate-income workers may qualify for the Earned Income Tax Credit (EITC), which could amount to up to $6,557 in 2019. For married couples filing jointly with three children, the income threshold for eligibility is $55,952. Those with two children can qualify with incomes up to $52,493, while those with one child can qualify with incomes up to $46,884. Finally, married couples filing jointly with no qualifying children can qualify with incomes up to $21,370.

The IRS emphasizes that taxpayers may experience delays in receiving their refunds if they have not filed their 2020 or 2021 tax returns or if they owe additional taxes to the IRS. For taxpayers in need of assistance in preparing their returns, the IRS provides several options:

Copies of Key Documents: Taxpayers who are missing Forms W-2, 1098, or 1099 can request copies from their banks, brokers, or employers.
Online Transcript: Taxpayers can obtain a transcript from the IRS website by using the “Get Transcript Online” tool.
Request a Printed Transcript: Taxpayers can submit IRS Form 4506-T to request a “wage and income transcript” from the IRS. This transcript displays all tax forms received by the IRS. However, it is important to note that receiving a printed copy via mail may take several weeks, and therefore, the other options are recommended for quicker access.
Taxpayers are urged to take advantage of the remaining time and the assistance provided by the IRS to ensure they receive their entitled refunds for the 2019 tax year. For more information and resources, individuals can visit the official IRS website or contact their local IRS office.

About the IRS:
The Internal Revenue Service (IRS) is the tax administration agency of the United States federal government. Its primary responsibility is to administer and enforce the internal revenue laws and collect taxes owed by individuals and businesses. The IRS also provides taxpayer assistance and educational resources to help taxpayers understand and fulfill their tax obligations.

Hey Billionaires: If You Think That Taxes Should Be Raised for Billionaires, You Should …

by Fred Fuld III

The United States government has a huge amount of debt. As a matter of fact, the government debt now stands at more than $30,482,000,000,000.

One way to pay down that debt is through higher taxes. There are several billionaires that believe taxes on billionaires should be increased for themselves and other billionaires

Some of these wealthy individuals include:

  • Warren Buffett
  • Bill Gates
  • George Soros
  • Eli Broad
  • Michael Bloomberg
  • Mark Cuban

But what I can’t understand is that if the wealthy really believe this, what are they waiting for?

Billionaires that believe their taxes should be higher should go ahead and make more payments to the U.S. Government.

Nothing is stopping them. They can write a check out right now. Apparently, quite a few people have “donated” to the government.

There are actually a couple ways to make these payments to help reduce the national debt. Here is what they need to do:

They can go to Pay.gov, and pay online by credit card, debit card, PayPal, checking account, or savings account.

If they pay by credit card, I hope they have a nice high credit limit. Maybe they can earn points on their payments.

The other way is by writing a check, and make it payable to the Bureau of the Fiscal Service, and, in the memo section, notate that it is a gift to reduce the debt held by the public. The check should be mailed to:

Attn Dept G
Bureau of the Fiscal Service
P. O. Box 2188
Parkersburg, WV 26106-2188

So what are these billionaires waiting for? Why don’t they put their money where their mouth is?

Exclusive Interview with Ken Fisher about the Stock Market Under Trump versus Biden

by Fred Fuld III

The following informative interview was provided by Kenneth L. Fisher, founder and chairman of the money management firm Fisher Investments, who had the longest continuous running column in Forbes Magazine. He is a billionaire on the Forbes 400 list and author of numerous investment related books.

According to Investment Advisor magazine, he is one of the 30 most influential people in the investment advisory business over the last 30 years. Fisher is considered to be the largest wealth manager in the United States.

We cover a lot in this interview, including:

  • The stock market under President Donald Trump versus former Vice President Joe Biden
  • The influence of corporate tax rate on the stocks 
  • The potential of the reversal of Trump’s tax bill on Day One if Joe Biden & Kamila Harris win the election
  • The market under Republicans versus Democrats
  • Whether inflation is on the horizon
  • The petroleum industry
  • Gross Output, GDP, and the economy versus the stock market
  • Are stock ratios dead? (PE, PS, PEG)
  • And much, much more

Two Timeless Books Mentioned by Ken Fisher in the Interview

The Only Three Questions That Still Count: Investing By Knowing What Others Don’t (A great companion to the  Beat the Crowd: How You Can Out-Invest the Herd by Thinking Differently book, which I enjoyed reading.)

Wall Street Waltz

(My favorite of all his books is The Ten Roads to Riches: The Ways the Wealthy Got There (And How You Can Too!) Second Edition,  because it is so different from all the other financial publications. It basically tells you ten ways, with all the steps, to get really rich, including “marrying a billionaire.” Lot’s of insight and lots of humor. You can find more info about this book on a previous podcast: Interview with Billionaire Ken Fisher about the 10 Roads to Riches.)

The Interview

Enjoy listening to the great insights and  information that Ken Fisher provides.

To stream the interview, click:

HERE

You can also download the interview as an mp3 by right-clicking here and choosing “save as.”

Enjoy the interview and Happy Investing!

All opinions are those of Ken Fisher, and do not represent the opinions of this site or the interviewer. Neither this site, nor the interviewer, nor the interviewee are rendering tax, legal, or investment advice in this interview.

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As an Amazon Associate, earnings may be generated from qualifying purchases of books from affiliate links above.

Top IPO Tax Selling Stocks for a Possible Bounce in January

by Fred Fuld III

In case you haven’t noticed, many of the IPO stocks during the last year have turned out to be turkeys, making them possible tax sale opportunities.

If you are wondering what a tax selling stock is, it is a stock that is currently selling for a low price due to heavy year-end selling for tax purposes, but was trading at much higher levels earlier in the year.

As the year-end approaches, many investors employ the technique called tax harvesting , which is the selling of loser stocks to offset any gains that may have been established during the year.

With all the heavy selling, the price of the stocks that have had big drops tends to tank far more than what would normally take place during the rest of the year.

So traders and investors are on the lookout for stocks that are heavily hit, hoping for a significant bounce in January, once the tax selling is over.

So if you are looking for these types of stocks, here is a selection of some that have dropped by over 20% year-to-date. They all have market capitalizations over $500 million.

Stock Symbol Price Drop YTD
Chewy CHWY -29.5%
Fiverr FVRR -43.3%
Levi Strauss LEVI -20.5%
Lyft LYFT -47.1%
SmileDirectClub SDC -29.8%
Uber Technologies UBER -24.2%

Maybe someone’s tax losses can be your tax stock gains.

Disclosure: Author owns FVRR

How the 2017 Tax Reform Bill Impacts Small Business

Just in time for tax season, Eric Tyson, MBA, and author of Small Business Taxes for Dummies, reveals how the recent tax reform bill will impact small businesses this year and beyond.

          Hoboken, NJ (March 2019)—As a small business owner, you’ve likely always struggled to minimize your taxes and stay profitable. Now at last, there’s some good news! When the Tax Cuts and Jobs Act federal income tax bill took effect in 2018, it produced many changes that reduced and positively impacted small business taxes. With tax season right around the corner, it pays (literally) to know how this reform impacts your small business’s bottom line.

“All small business owners should be aware of how the recent tax reform affects their tax picture,” says Tyson, author of Small Business Taxes For Dummies®, Second Edition(Wiley, March 2019, ISBN: 978-1-119-51784-9, $26.99). “Not only do most of these changes signify good things for your tax return this year, but understanding them can help you strategize wisely for the future.”

What does the new tax landscape mean for you? Keep reading to learn how the Tax Cuts and Jobs Act will affect (and mostly benefit) your small business.

It reduces individual income tax rates. The Tax Cuts and Jobs Act slashed the corporate income tax rate from 35 to 21 percent, a 40 percent reduction. Likewise, individual income tax rates were also reduced under the new act. Most of the tax bracket rates were reduced by several percentage points. This is great news for the vast majority of U.S. small business owners who operate their businesses as pass-through entities (for example, sole proprietorships, LLCs, partnerships, and S-corps).

It allows a 20 percent deduction for pass-through entities. In redesigning the tax code, Congress rightfully realized that many small businesses operating as pass-through entities would be subjected to higher federal income tax rates compared with the new 21 percent corporate income tax rate.

To address this concern, Congress provided a 20 percent deduction for those businesses. For example, if your sole proprietorship netted you $60,000 in 2018 as a single taxpayer, that would push you into the 22 percent federal income tax bracket. But, you get to deduct 20 percent of that $60,000 of income (or $12,000) for the pass-through deduction, so you would owe federal income tax only on the remaining $48,000. However, this deduction gets phased out for service business owners (such as lawyers, doctors, real estate agents, consultants, etc.) at single taxpayer incomes above $157,500 (up to $207,500) and for married couples filing jointly with incomes more than $315,000 (up to $415,000). For other types of businesses above these income thresholds, this deduction may be limited, so consult with your tax advisor.

“This is a major change that has made small business owners exceedingly optimistic about being able to grow their businesses,” says Tyson.

It allows you to enjoy better equipment expensing rules. Through so-called Section 179 rules, small businesses have historically been able to immediately deduct the cost of equipment, subject to annual limits, they purchase for use and place into service in their business. But the 2017 tax bill expanded these rules. Now, more businesses can immediately deduct up to $1 million in such equipment expense annually (up to the limit of their annual business income). And, this deduction can also now be used for purchases on used equipment. These provisions, which don’t apply to real estate businesses, remain in effect through 2022 and then gradually phase out until 2027 when the prior depreciation schedules are supposed to kick back in.

It increases the maximum depreciation deduction for automobiles. The new tax bill included a major increase in the maximum amount of auto depreciation that can be claimed. The annual amounts of auto depreciation have more than tripled. Effective with tax year 2018, the maximum amounts that can be claimed are as follows:

Year 1: $10,000 up from the prior limit of $3,160
Year 2: $16,000 up from the prior limit of $5,100
Year 3: $9,600 up from the prior limit of $3,050
Year 4 and beyond: $5,760 up from the prior limit of $1,875, until costs are fully recovered.

These annual limits will increase with inflation for cars placed into service after 2018.

It limits your interest deductions. Effective with 2018, companies with annual gross receipts of at least $25 million on average over the prior three years are limited in their deduction of interest from business debt. Net interest costs are capped at 30 percent of the business’s earnings before interest, taxes, depreciation, and amortization (EBITDA). Farmers and most real estate companies are exempt. Then, effective in 2022, this provision actually gets more restrictive and would thus affect even more businesses. At that point, the 30 percent limit will apply to earnings before interest and taxes.

It reduces meal and entertainment deductions. The tax reform bill of 2017 eliminated the entertainment expense deduction for businesses. Under prior tax law, 50 percent of those expenses were deductible (for example, when a business entertained customers and even employees at sporting events, fitness clubs, and restaurants).

The new rules do include some exceptions. On-site cafeterias at a company’s offices and meals provided to employees as well as business meals associated with travel are 50 percent deductible. Meals provided to prospective customers as part of a seminar presentation are still fully deductible. Holiday parties and company picnics are also fully deductible as long as they are inclusive of everyone.

It eliminates the health insurance mandate. Since the Affordable Care Act (a.k.a. Obamacare) was passed by Congress in 2010, some Republicans in Congress vowed to repeal it. With the election of Republican Donald Trump in 2016, it seemed that the pieces were in place for Obamacare’s successful repeal. But, Republicans fell one vote short in the Senate when the late Arizona Senator John McCain gave the repeal measure his infamous thumbs-down vote.

So, the 2017 tax bill included a little-known or -discussed measure that eliminated Obamacare’s mandate effective in 2019, which required people to have or buy health insurance coverage, and if they didn’t, they’d face a tax penalty. So, the penalty tax also disappears in 2019.

It revises rules for using net operating losses. Net operating losses (NOLs) can no longer be carried back for two years. However, NOLs may now be carried forward indefinitely until they are used up. Previously, the carry-forward limit was 20 years. NOLs are limited each year to 80 percent of taxable income.

“Where business taxes are concerned, knowledge is always power,” concludes Tyson. “Learn how you can benefit from this long-overdue tax reform and use that knowledge to make more informed decisions. And by all means, take comfort in knowing that you have plenty of reasons to be optimistic about growing your small business.”

# # #

About the Author:
Eric Tyson, MBA, is the author of Small Business Taxes For Dummies®, Second Edition(Wiley, March 2019, ISBN: 978-1-119-51784-9, $26.99). Eric is an internationally acclaimed and best-selling personal finance author, counselor, and writer. He is the author of five national best-selling financial books including Investing For Dummies, Personal Finance For Dummies, and Home Buying Kit For Dummies. He has appeared on NBC’sToday show, ABC, CNBC, FOX News, PBS, and CNN, and has been interviewed on hundreds of radio shows and print publications.

About the Book:
Small Business Taxes For Dummies®, Second Edition (Wiley, March 2019, ISBN: 978-1-119-51784-9, $26.99) is available at bookstores nationwide and Amazon and other major online booksellers.

How to Get Your K-1 Tax Forms Fast

Are you tired of waiting for your K-1 tax forms to arrive in the mail? Have you ever had a K-1 get lost in the mail or be delayed by a week?

Many investors like to get their tax returns done as soon as possible. Fortunately, there is a way to get your K-1s as soon as they are done, in an electronic form (which can be printed out of course).

There are two companies that provide this service:

Tax Package Support

https://taxpackagesupport.com

This website has well over 200 limited partnerships listed with their  contact phone number and the date the K-1 was first released. You can click on the partnership that you own, create an account, and get the K-1. You can get it in the form of a pdf or through TurboTax.

Deloitte Publicly Traded Partnership K-1 Services

https://partnerdatalink.com/landing/landing.html

This site has 34 partnerships listed. Similar to the other site, you click on the partnership, create an account, and get the K-1.

Top Tax Selling Stocks: Bargains for a Possible Bounce in January

by Fred Fuld III

You may be wondering what a tax selling stock is. It is a stock that is currently selling for a low price but was trading at much higher levels earlier in the year.

As the year-end approaches, many investors employ the technique called tax harvesting , which is the selling of loser stocks to offset any gains that may have been established during the year.

With all the heavy selling, the price of the stocks that have had big drops tends to tank far more than what would normally take place during the rest of the year.

So traders and investors are on the lookout for stocks that are heavily hit, hoping for a little (or big) bounce in January, once the tax selling is over.

So if you are looking for these types of stocks, here is a selection of some that have dropped by over 75% year-to-date. They all have low market capitalizations so they should be considered speculative, as the market caps are all less than $800 million. However, all of these have a price to earnings ratio of less than 12 and all have a price sales ratio less than one.

Company Symbol Market Cap P/E Price
Francesca’s Holdings Corp. FRAN 45.86M 11.81 1.04
Ferroglobe PLC GSM 334.56M 4.15 1.81
Iconix Brand Group, Inc. ICON 9.41M 0.29 0.12
MiMedx Group, Inc. MDXG 190.98M 5.53 1.55
OncoMed Pharmaceuticals, Inc. OMED 31.76M 6.08 0.81
United Natural Foods, Inc. UNFI 788.58M 4.09 11.09
Ultra Petroleum Corp. UPL 189.41M 1.36 0.92

If the above stocks are too speculative for you, here are some stocks that are down over 50% year-to-date and have market caps in excess of $2 billion. They all have P/E ratios less than 14, and a price sales ratio of less than one.

Company Symbol Market Cap P/E Price
CommScope Holding Company, Inc. COMM 3.39B 13.91 16.89
Mohawk Industries, Inc. MHK 8.96B 9.65 117.02
Owens Corning OC 4.83B 10.78 43.44
Spectrum Brands Holdings, Inc. SPB 2.43B 4.66 45.81
Thor Industries, Inc. THO 2.79B 6.25 54.04

Maybe someone’s tax losses can be your tax stock gains.

The Companies that will Benefit the Most from the New Tax Law

The new tax law has passed and is waiting for the signature of the president. This change will provide a huge economic benefit for many corporations, especially for those that keep money overseas, due to the repatriation tax holiday.

Although there will be benefits to having plants and facilities in other countries, it is expected that most companies will prefer to have most of their operations in the United States. Many U.S. citizens are now starting to benefit from the corporate tax cut such as the AT&T (T) $1,000 bonus for all employees.

From an investor standpoint, the fundamentals for certain companies should improve dramatically which should help the stock price. Here are some of the corporations with the biggest cash holdings overseas.

Apple (AAPL)  ~ $215 billion to $252 billion depending on what source you use and what day of the month it is

Microsoft (MSFT) ~ $128 billion

Cisco (CSCO) ~ $68 billion

Oracle (ORCL) ~ $48 billion to $54 billion

Alphabet / Google (GOOG) ~ $32 billion

Johnson & Johnson (JNJ) ~ $41 billion

Amgen (AMGN) ~ $36 billion

Watch the performance of these stocks during the new year. Speaking of new year, Happy New Year!!!

Why You Should Buy Stocks with a High Tax Rate

If you are looking for a short term speculation or a long term investment, you may want to look for stocks that are currently paying a high tax rate. Why?

According to the Tax Policy Institute, President-Elect Donald Trump has proposed a substantially reduced rate of 15% for corporations. What that means for stocks is that if companies are currently paying taxes at a high rate, they will benefit significantly from tax savings that will flow to the bottom line.

Surprisingly there are some companies that have a tax rate in excess of 60% (e.g. Amazon (AMZN)), according to a report by Wallet Hub. This includes state taxes.

Here are some of the hight overall tax bracket stocks, which may warrant further investigation.

Comcast (CMCSA) 37.1%

Home Depot (HD) 36.4

Norfolk Southern (NSC) 36.3%

Altria (MO) 35.1%

Verizon (VZ) 34.9%

Emerson Electric (EMR) 34.3%

Do your homework and your own due diligence. Hopefully, a corporate tax break with benefit your portfolio.

Disclosure: Author owns AMZN.