Tax Deduction Consulting: Worthless Stocks Wasilla AK
Eagle River, AK
Shilanski & Associates, Inc.
Years of Experience: 9
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Tax Deduction Consulting: Worthless Stocks
Turning Your Worthless Stock Into A Tax Deduction
Own stock in a company that went bankrupt this year? You are not alone. Fortunately, you may be able to take a income tax deduction on that worthless stock.
Good year or bad, there are always going to be a number of publicly traded companies that crash and burn in a given year. Remember, Enron was a disaster in the middle of one of the strongest economic environments in years. Of course, there has been more bad news than good since then, so failing companies have become a bit of the norm.
How does the IRS view stock in a failed company? Well, it is seemingly simple, but a bit technical when looked at closely. Generally speaking, the IRS takes the position that completely worthless stock should be treated as though it was sold on the last calendar day of the year in question. The question, of course, is what does "completely" mean? The answer is a totally worthless stock. This means one that is no longer traded anywhere. Many taxpayers get into trouble by claiming this deduction when a stock is delisted. A delisted stock may not be on NASDAQ or NYSE anymore, but it could still be trading on the pink sheets or warrant markets. If so, it is not completely worthless.
To claim the deduction, you'll need to get Schedule D for the 1040 tax form for the year in question. The entry is made in lines 1 or 8 depending on whether the stock was held short term or long term. Keep in mind, the date used to determine this is the...