How to Understand Your Capital Losses
Capital losses generally refer to those assets of a company whose price has fallen compared to the buying price. The monetary loss that you have experience will essentially be termed as a capital loss. This can be applied to various circumstances, such as the loss of value of your property or the stock you have invested in. Understanding the concept is necessary as you need to record the values in your books, according to the rules specified by the Internal Revenue Service. If you want to understand your capital losses then follow these simple techniques.
Instructions
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The first thing to note is whether your loss is long-term or short-term. Any investment retained by the company for over a year will be considered as a long-term one. Keeping the IRS rules in mind, you will need to fill out Form 8949 or Schedule D, where you will be entering the precise amount. You can find all of these forms from the website of the IRS which are easy to find and download.
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Remember, only when you decide to sell an asset can it be considered as a loss. Having them on your books will only be a cause of distress, but does not give you the right to recognise them as losses. Moreover, any of your personal property such as a car cannot be considered tax deductible.
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After you have realised an asset as a loss, the IRS allows you to claim $3000 in deduction. Again, this is only permissible for investment properties which you had brought in the hope of generating additional money. Your personal jewellery, car, computer will not be considered a part of investment property.
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Parents, who try to trick the IRS by putting their investments in the name of their children, will also get affected under the ‘kiddie-tax’ law, where the tax rate will be charged at a higher rate until the child reaches 19 or 24.
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If you have trouble understanding your capital losses then you might want to talk to a certified accountant that can help you with all of the details. It is important to understand all the technicalities as you do not want to screw up your taxes by over or under report something that you might not understand and possibly get you in to trouble. It is a good idea to hire an accountant or firm that deals with tax related issues to get a better understanding of your capital losses.
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Visit a bookstore or local library for excellent easy to follow books that can help explain capital losses. Either buy or check out some books to get a better understanding of capital losses so that you can properly prepare your taxes and keep your financial records in order.
