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Registered User Joined: 9/20/2005 Posts: 6
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If I shorted 500 shares of a stock in order to ease a tax burden and keep from losing a profit, what could I do after the first of the year in order to realize the profit? Also, what would the risk be of that technique?
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Registered User Joined: 3/28/2005 Posts: 2
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Hi Ch Thompson. Your question is confusing. Whether you enter a position long or short has no bearing on taxes. Taxes are paid on profits and losses are deductible with specific limitations. A chat with a tax professional might be a good idea.
Also, it almost seems like you want to be short and long the same stock simultaneously. Maybe do some more research about short sales before venturing much further. Call your broker too.
As far as offsetting profits with losses in the same stock, the IRS has very exacting requirements. Their are a number of IRS publications that address the Wash Sales Rule and there is even a tele-tax topic that you can listen to. The Wash Sales Rule was created to prevent folks from doing precisely what it appears you are considering: Make a profitable trade in a specific security, take a loss on the same security and then jump back in. Try that and you might be surprised to learn that you will pay taxes on the profitable leg of the trade, will sustain a loss on the losing leg and not be able to deduct a penny of the loss.
Sort of a double whammy. The goverment takes your money and then you willingly give a bunch more of it back to the markets. Doesn't seem like a very workable approach.
Good Luck, Geoff
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Registered User Joined: 12/13/2004 Posts: 76
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Anyone who does a lot of trading may find this book enlightening. The New Trader's Tax Solution, by Ted Tessler. Imo, it is a must read for all active traders. Also, usually, when someone thinks of a "great, new way to beat taxes", the IRS has already put in place a rule to prevent it's use. They've been doing this for a long time and have seen it all.
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Registered User Joined: 4/8/2005 Posts: 9
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Hi ch If your afraid of loosing a profit before years end buy a put that will take you into next year if the stock has options. lepaul
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