1 move you might want to make if you have losing stocks in your brokerage account
A stock that has lost value might actually work to your advantage.
For most people who open a brokerage account, the goal is to stock up on quality investments in the hope that they will gain in value over time. But that doesn’t always happen.
Sometimes the stock market can collapse, causing the value of investments to drop. When this happens, it’s usually a good idea not to act immediately, but rather to give your investments time to recover.
But if you have a specific stock in your brokerage account that is constantly losing value while the market as a whole is doing well, that’s another story. In this case, there may be a problem with the company behind this stock. Maybe its product pipeline has dried up. Maybe his management team did a poor job of managing cash flow and debt.
Either way, if you’re sitting on a losing stock that you don’t think you’ll recover, you might want to make a key move before the end of 2021 – sell it.
Use losing stock to your advantage
When you sell a stock for less than what you paid for, you are losing money. But there are ways to use this loss to your financial advantage.
When you sell stocks in your brokerage account at a profit, you become liable for tax on what are known as capital gains. But if you have a loss in your wallet, you can use it to offset your gains.
Now, let’s say you are sitting on another stock in your portfolio that is on the rise right now, but you are concerned that its success will be short-lived. If you sell it for a profit of $ 1,000, you will lose some of that profit to the benefit of capital gains tax. But if you also record a loss of $ 1000 in your brokerage account, that loss will nullify your gain, so you don’t have to worry about taxes on it.
This is not the only way that selling a losing stock can benefit you. If you record a loss in your brokerage account and have no capital gain to offset, you can use your loss to offset up to $ 3,000 of ordinary income. So if you sell a stock and suffer a loss of $ 3,000 and have no gain, you will not be charged taxes on $ 3,000 of your gains.
In addition, you are also allowed to carry losses forward to future tax years. If you lose $ 5,000 in your portfolio and have no gain, you can offset $ 3,000 of income for that year and then carry the remaining $ 2,000 into 2022.
While losing money in your brokerage account can be a huge disappointment, there are ways it can work to your advantage. But be sure to act quickly if you want to reap these benefits for the current tax year. You need to take this loss by December 31st for it to count for 2021 tax purposes, so if there is a falling stock that you have completely given up on, you may want to unload it now. .