Did you know August 15th was National Failures Day? Well, I didn’t either and it was only after reading an informative article from Don’t Mess with Taxes, Kay Bell titled: “Turning financial failures into tax-saving successes” that I thought there should be any reason to celebrate.
In the article, Kay Bell highlights the following financial “failures” that if deducted on your tax return may actually provide some benefit and possibly take the sting out of these costly mistakes.
As Kay Bell points out, in some instances it’s sometimes to our financial advantage to admit that we chose a loser stock or investment. The good news is that you may have the opportunity to turn that investing fail into a tax win by claiming the loss against any capital gains you might have that tax year.
According to Kay Bell, if you don’t have any gains, you can still deduct up to $3,000 of your capital losses against ordinary income for the tax year. Any excess can be carried forward for use in reducing your taxable income in future tax years.
Investment Fraud Losses
In the same vein, if you think you are a victim of a fraudulent investment scheme or “Ponzi” Scheme, where you may have lost all or most of your investment, you could be eligible to recoup 30% to 40% of your losses. Under Internal Revenue Code Section 165 treatment, (named after the Internal Revenue Code, Section 165, which allows this procedure), victims of white collar crimes can convert their capital stock losses into “ordinary” losses and offset them against prior, current and future ordinary taxable income. This action can help reduce the taxes paid in those years, and taxpayers can receive a refund with interest.
Schedule C Losses
Businesses need to make a profit if they don’t want their company red flagged for an IRS audit. Kay Bell reminds us that if a company isn’t profitable, tax auditors may think it was created just to create tax losses. This could then trigger further examination of the company records in the form of a business audit.
As the article correctly states, it’s ok to have a bad year especially if the business is a side operation and there is other income to help pay the bills. When your Schedule C or C-EZ one year is in the red, that loss goes on your 1040 (line 12) just like all the profits did in other years.
Important note: If you think you may be entitled to take such losses, make sure you consult a qualified tax professional about your individual financial situation. This is particularly true of recovering your losses through Section 165 Representation. In order to do so, you will have to amend past tax returns, which means you will most likely be audited. In this case, it is even more imperative to have experienced tax professionals help you through the process so you can successfully turn your financial life back around.
More Tax Help, IRS News and Tax Relief Tips:
- Tax Relief Weekly News Round Up
- Tax Relief Tips-More Top Tax Audit Triggers to Avoid
- Tax Expert-Hiring a Tax Professional on Fox News
- IRS Offers Tax Help Tips-Worker Classification
- Madoff Victims Still Waiting for Investment Fraud Relief