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

This is such a clear explanation! I'm also a beginner trader and was getting confused by all the different scenarios people were throwing around. So just to make sure I understand - if I have ANY net gains for the year (even small ones), I don't get to use that $3,000 deduction against my regular income at all? The losses just reduce my capital gains and that's it? Also, when you mention keeping good records - should I be tracking this stuff myself or is the 1099-B from my broker usually accurate enough? I've heard some people say the cost basis can be wrong sometimes.

Exactly right! If you have net gains for the year, the $3,000 deduction against ordinary income doesn't apply to you. Your losses just offset your gains, and you pay taxes on whatever's left over. The $3,000 rule is only for people who end up with more losses than gains overall. Regarding record keeping - definitely track things yourself as a backup! While most brokers are pretty good with cost basis now (especially for stocks bought after 2011), there can still be issues. I've seen problems with: - Transferred positions from other brokers where the original cost basis didn't transfer correctly - Stock splits or dividend reinvestments that weren't calculated properly - Wash sale adjustments that span across different accounts or brokers I keep a simple spreadsheet with buy date, sell date, shares, buy price, sell price, and any fees. Takes like 30 seconds per trade but can save you hours of headaches later if your 1099-B has errors. Plus it helps you see your trading patterns and performance over time!

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 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.