I'm sure you are well aware of the $3,000 loss deduction limit per year for capital losses. This limitation has obviously angered many and some folks have tried to get around it in illegal ways.
I believe the $3000 loss per year rule really sucks too for folks. Maybe the IRS should change rules to allow bigger loss deductions for folks who have long- term losses on stocks.
This should demonstrate why some folks are angered with the $3,000 loss limit.
lets say a person earns $40,000 in salary in a year but incurs a $40,000 stock loss on, say, Enron. According to tax laws , the person has to report his $40,000 salary on his tax return and can only report a stock loss for that year of $3,000.. this brings his Adjusted gross income on that tax return to $37,000. take off another say, $7,000 for his standard deduction and personal exemption and this person is left with taxable income of $30,000 on his tax return.
Based on $30,000 taxable income, the person would have about a $4,300 tax liability even though they made no money during the year !!! ($40,000 salary - $40,000 stock loss)
I imagine it makes folks steaming angry |
