Win from Losing

Cash in on underwater stocks

stockfigures3In the first quarter of 2008, the Dow Jones Industrial Average lost nearly 8%. That was the worst quarterly performance since 2002. What’s more, the Dow lost around 4% in the fourth quarter of 2007. The Dow remains a seesaw with wary inventors reacting to every bit of good and bad news that comes across their television screens. The bottom line, for many investors, is that they hold stocks and stock funds now selling for less than what they paid.

If you are in this situation, how should you react?
Limit your losses. Decide how far down a stock has to go before you sell it. For example, say you won’t take a loss that’s larger than 10%. If you buy a stock at $40 a share, you won’t hold it below $36: a $4 loss.

Take your losses. Some investors think they’ll hold on until they “break even.” That’s a mistake because a 10% drop can become a 20% or a 50% loss.

Don’t wait for year-end loss harvesting. Selling stocks and funds for capital losses is a common year-end tax planning tactic. However, if you wait until December, you may lose valuable tax breaks.

Why are losses valuable for tax purposes? There are several reasons:

  1. Capital losses can offset capital gains. You might owe tax this year from the sale of securities, the sale of real estate, the sale of a business, etc. Capital losses you take are netted against the gain, reducing the tax you owe.
  2. If you have taken losses, you can take gains without owing tax. Say you take $10,000 worth of losses in the spring of 2008. If the market turns around and you have gains in the second half of the year, you can take $10,000 worth of gains without owing tax.
  3. Net losses provide a tax deduction. Say you wind up this year taking $10,000 in capital gains and $25,000 in capital losses. You’ll owe no tax on the gains you’ve taken.
    “Each year, up to $3,000 worth of net capital losses can be deducted on your tax return,” says Tom Ochsenschlager, vice president of taxation at The American Institute of Certified Public Accountants. In this example, your $10,000 in gains and $25,000 in losses give you a $15,000 net capital loss. You can take a $3,000 loss on your 2008 tax return, saving you federal and state income taxes.
  4. Net losses you can’t deduct can be used in future years. In the above example, you have a $15,000 net capital loss for 2008. You deduct $3,000 on your 2008 tax return and “carry forward” the other $12,000, as your tax pro might say. Thus, you’ll be able to take capital gains in the future, knowing the first $3,000 will be tax-free over the next four years.

Don’t wait to reinvest. Once you’ve taken a capital loss, put the money back into the market. This time, you might have a winner, but if not, you can take another capital loss and

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38 Responses to Win from Losing

  1. Pchelpme says:

    Lately this type of startup has given me more freedom

  2. Adamah Ruach says:

    This is exactly where I am now…

    • Infinitehi4 says:

      I began volunteering and learned I had a greater passion than our regualar volunteers.  At first I didn’t understand what was happening but I soon realized I got great joy when helping others.  So I would say in place of moon lighting I volunteered, now we provided the same services as an exempt organization that partners with other like minded organizations.  So our startup will be my retirement job but one I look forward to really soon.  Thanks so much for the information.

  3. Jerome Espy says:

    Great points. I love the idea of profitable, manageable growth as a goal.

  4. Kristina says:

    Great point regarding having your venture match your complete benefits package from your full time job.   

  5. Sonia Harris says:

    I did some of these tips!!  Glad I was making the correct choice.

  6. Elle Mayo says:

    Although this does not apply to my current situation, you provided, once again, excellent points.   

  7. Rblack45 says:

    sound advice

  8. Eugenewjr says:

    Great idea.

  9. Lylesezed says:

    Thanks, you give me some points to consider on transitioning from my job to my business!

  10. Bobby says:

    Excellent advice.

  11. Quia says:

    Once again, GREAT ADVICE!! It will be a year in Aug that I transitioned to Full-Time Entrepreneur! Best decision that we ever made! My husband left his job, 2 years prior to start our own business, Big Daddy’s BBQ. I hung around my job, because of benefits.  I must admit, Health Insurance and Benefits are A LOT more expensive, but the business is doing AWESOME, and I don’t regret any decisions we’ve made, perfect timing!

  12. Gpragency says:

    This was great information

  13. Md_somers27 says:

    Great insight.  The point about keeping boundary between your business and your job was really important. I also liked the point about calculating your WHOLE package:  your salary plus your insurance and other benefits.  That’s a key step in setting realistic expectations.  Really good advice.

  14. Debra says:

    Very good information today. These classes have been very helpful .

  15. Donna says:

    Starting a new business is not a get rich quick scheme, take something you love doing, develop it into a process of time management, then succeed. What advice! Thanks Alfred.

  16. Aiesha says:

    These tips were great!! Definitely looking into transitioning from job to business. Can’t wait!

  17. I think that these are great tips and I know that in the past I made the mistakes of doing my business on the job. Now, I am fully self-employed and I love it. I hope that more people can join me in the quest to run your own business.

  18. I’m not in the position to be a hybrid. No hire for me in the past 2 years now so that’s why I started my own business, but this is great information.

  19. I’m not in the position to be a hybrid. No hire for me in the past 2 years now so that’s why I started my own business, but this is great information.

  20. Tettcommunitydevelopment says:

    Great information…. I’m learning a lot here at the SBU!!

  21. Mel says:

    Yes it is so hard not to work on your business while you are working for someone else. I had to disclose my business to my company because there was a potential that they could intersect. I do my best to not do business at work and am getting better at it. I keep telling myself that this is the company’s time and not mine so my lunch hour goes very fast because I am working on my side business. Needless to say my evenings and weekends aren’t in slow motion either.

  22. Start your business while working full-time

  23. Oneness4Real says:

    Thank you for sharing vital inormation!
    God Bless

  24. Rhonda Ulmer says:

    Thank you Mr. Alfred for the great tips! Thank you for encouraging me reach my goals!!

  25. I have been blessed to be able to pursue my business part-time while still maintaining my full-time job…thank God

  26. Forleasadon Harper says:

    Thank you for this great information. I will be better prepared for this business venture than the last.

  27. Alicia says:

    thanks. i currently work part time and endeavoring to have a business in fashion design.

  28. Andrea Paige says:

    Thanks for the tips. I am currently “moonlighting” and it is very difficult to balance the two. However, I desire to one day operate my business full-time and I am going to continue to work on it.

  29. Cherry says:

    Thanks for the information. i found it o be quite helpful and a slap on the wrist.

  30. Jay says:

    Good knowledge…

  31. Janarthanan Dakshnamoorthy says:

    Good inputs.

  32. Janarthanan Dakshnamoorthy says:

    Good lesson

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