Understanding how Tax write offs work for stock losses while still profitable

So what happens if you have like wayyyy more than $3000 in losses? Like some people lost a ton in the crash... do you just never get to write it all off?

If your losses exceed $3,000 more than your gains in a single year, you can only deduct $3,000 against other income for that year. But don't worry - you don't lose the remaining losses forever. Any losses beyond the $3,000 limit can be carried forward to future tax years indefinitely. For example, if you had $10,000 in net losses this year, you could deduct $3,000 this year, then carry forward $7,000 to next year. Next year you would use those losses first to offset any capital gains, and then up to $3,000 more against other income. This process continues until you've used up all your carried-forward losses.

Does it connect directly to your brokerage account? I use three different platforms and consolidating everything is a nightmare. Also, does it handle crypto tax reporting too or just stocks?

I'm a bit skeptical about giving some random website access to my financial data. How secure is it? And can't tax software like TurboTax do the same thing anyway?

You can either connect your brokerage accounts directly or upload your trading statements - I personally just uploaded my year-end statements from my brokerages since I was a bit hesitant at first too. It made everything super easy to consolidate across platforms. Yes, it absolutely handles crypto! That was actually the most helpful part for me since crypto tax reporting is such a headache with all the different exchanges and wallets I use. I tried using TurboTax initially, but it didn't catch some of the more complex situations like wash sales across different accounts and some cost basis issues. The taxr.ai tool is much more specialized for investment taxes and found several things TurboTax missed. Plus their security is top-notch - they use bank-level encryption and don't store your credentials.

Wait how does this even work? The IRS phone system is completely broken - I tried calling like 10 times last year. Are they somehow jumping the queue or something?

Sounds like a scam honestly. Why would I pay some random service to call the IRS when I can just keep trying for free? And how do they get through when nobody else can?

They use some kind of automated system that basically waits on hold for you. When it reaches a real person, it calls you and connects you. I don't know the exact tech behind it, but it definitely isn't queue jumping - they're just persistent with the dialing and waiting so you don't have to be. Not a scam at all - I was just as skeptical as you are! From what I understand, they have multiple lines dialing simultaneously with automated systems that can detect when a real person answers. They're basically just doing the tedious part of calling and waiting over and over until they get through.

Thanks for bringing this up! I wasn't thinking about the difference between short and long term rates. If I hold something for exactly one year, does that count as long term? Or does it need to be a year plus one day?

You need to hold the stock for more than one year to qualify for long-term capital gains rates. The IRS counts this as a year and a day from your purchase date. For example, if you bought a stock on April 15, 2024, you would need to hold it until at least April 16, 2025, to qualify for the lower long-term capital gains tax rates. Even one day short of this would mean it gets taxed as a short-term gain at your ordinary income tax rate.

Yes! Trading fees and commissions should be added to your cost basis when you buy and subtracted from your proceeds when you sell. This effectively makes them tax-deductible since they reduce your taxable gain (or increase your deductible loss). For example: - If you buy $1000 worth of stock and pay a $5 commission, your cost basis is $1005 - If you sell for $1200 and pay another $5 commission, your proceeds are $1195 - Your gain would be $1195 - $1005 = $190 (not $200

Oh wow, I had no idea about the wash sale rule applying to purchases BEFORE the sale too! I've been doing weekly investments into some index funds and then occasionally selling portions when I need cash. I wonder if that's been triggering wash sales without me realizing it. Do you know if the wash sale rule applies to ETFs that track the same index? Like if I sell VTI at a loss and then buy VTSAX within 30 days, would that be considered "substantially identical" even though they're technically different funds? This is getting more complicated than I thought! Also, are there any good free wash sale calculators you'd recommend? I'm trying to avoid paying for expensive tax software if possible.

Great questions! The ETF situation is actually a gray area that the IRS hasn't given completely clear guidance on. VTI and VTSAX both track the same index (total stock market), so they could potentially be considered "substantially identical" by the IRS. Some tax professionals are conservative and treat them as wash sales, while others argue they're different enough since one is an ETF and one is a mutual fund. To be safe, I'd avoid switching between funds that track the same index within 30 days if you're trying to harvest losses. If you want to stay invested in the market during the 30-day period, you could temporarily switch to a similar but not identical fund (like switching from a total market fund to an S&P 500 fund). For free wash sale calculators, I've had good luck with the one on Portfolio Visualizer's website. It's not as fancy as some paid tools, but it gets the job done for basic wash sale tracking. You just need to input your transactions manually. Some people also use spreadsheet templates that you can find on Reddit's investing communities - they have formulas built in to flag potential wash sales. The weekly investing thing you mentioned could definitely be triggering wash sales if you're selling within 30 days of purchases. Might be worth reviewing your transaction history to see if any losses got disallowed!

Great questions! The wash sale rule can definitely be tricky when you're doing regular investing. For your first question about VTI vs VTSAX - this is actually a gray area that the IRS hasn't given completely clear guidance on. Both funds track the same index (total stock market), so they could potentially be considered "substantially identical." Most tax professionals I've seen tend to be conservative and treat them as substantially identical, especially since they have nearly identical holdings and performance. If you want to harvest losses safely, you'd probably want to switch to something that tracks a different index entirely - like going from a total market fund to an S&P 500 fund, or from domestic to international. That way there's no question about them being substantially identical. For free wash sale calculators, I've had good luck with: - The one on Bogleheads.org (they have a simple spreadsheet template) - Some of the free features on Portfolio Visualizer - Even just a basic spreadsheet where you track your buy/sell dates and can flag anything within 30 days The weekly investing thing is definitely something to watch out for! If you're buying the same fund every week and then sell some shares at a loss, those recent purchases could trigger wash sales. You might want to consider pausing the weekly purchases for 31 days after any loss-harvesting sales, or switch to investing in a different fund during that period.

Great questions! The wash sale rule with similar ETFs is actually a gray area that can trip up a lot of people. VTI and VTSAX both track the total stock market, so while there's no definitive IRS ruling, many tax professionals would consider them "substantially identical" and advise avoiding that swap. To be safe, if you're going to tax loss harvest, try switching to something that tracks a different index entirely for those 30 days. For example, if you sell VTI at a loss, you might temporarily buy an S&P 500 fund instead of another total market fund. For free wash sale tracking, I've had good luck with: - Portfolio Visualizer's wash sale calculator (free online tool) - Some people use spreadsheet templates they find on Bogleheads forum - If you have a Schwab or Fidelity account, their tax tools can help identify potential wash sales The weekly investing thing you mentioned could definitely be triggering wash sales if you're selling portions of the same fund. The IRS uses FIFO (first in, first out) by default unless you specify which shares you're selling, so it gets messy quick with regular purchases.

Great question about ETFs! The wash sale rule for "substantially identical" securities is definitely a gray area that trips up a lot of people. VTI and VTSAX both track the same index (total stock market), so there's a strong argument they could be considered substantially identical by the IRS. Most tax professionals I've seen discuss this recommend avoiding swapping between funds that track the same underlying index within the 30-day window to be safe. However, switching between broader categories (like selling a total market fund and buying an S&P 500 fund) is generally considered okay since they track different indexes with different holdings. For free wash sale tracking, I've found that some of the basic versions of tax software like FreeTaxUSA actually handle this pretty well if you upload your 1099-B. There's also a decent free calculator on the Bogleheads wiki, though you'll need to input everything manually. The tricky part is that wash sales can span across different brokerage accounts, so if you have positions at multiple brokers, you might need to track it yourself in a spreadsheet to catch everything the automated systems miss.