ShmoopTube

Where Monty Python meets your 10th grade teacher.

Search Thousands of Shmoop Videos


Regulations Videos 358 videos

Finance: What is Rescission?
6 Views

What is rescission? Hit play to find out.

Finance: What is Material Information?
8 Views

Materials information is important information pertaining to a securities transaction.

Finance: What is Arbitration?
5 Views

What is Arbitration? Arbitration is like court for the financial world. It is used to settle disputes between investors and their brokers. An inves...

See All

Finance: What is tax loss selling? 4 Views


Share It!


Description:

What is tax loss selling? Hit play to find out.

Language:
English Language

Transcript

00:00

Finance a la shmoop what is tax loss selling okay it's been a great year

00:07

overall you own a dozen stocks eleven of them are up nicely one however is a pig [Stocks appear]

00:13

down big there's a week left in the year before the taxman closed with his books [Calendar of year appears]

00:19

and gains and losses are calculated for tax purposes well of the 12 stocks you

00:25

own one has gotten really pricey now trading at eighty times earnings and

00:30

it's making you really nervous as you know that Dell if they don't have an [Company earnings graph appears]

00:34

awesome earnings every quarter the stock will get cut in half or worse so you

00:38

have a thousand shares of chap my hide a company that sells leather scented

00:43

chapstick the stock is now at 80 bucks 80 grand worth which you bought three

00:47

years ago for ten grand or ten bucks a share huge $70,000 gain nice work but

00:55

you know that if you sell it since you live in a high tax blue state you'll pay [California highlighted blue]

00:59

dearly about 35% tax on that gain or almost 25 grand in taxes leaving you

01:06

just fifty five thousand dollars in cash after the sale well luckily you

01:10

carefully watched this video and you know about tax law selling in this case [Tax loss selling video appears]

01:15

well you have one big fat pig there to draw from ok another stock yeah a

01:21

totally different outcome the pig you paid 50 grand for scratch-and-sniff [Scratch and Sniff diapers appear on the shelf]

01:24

diapers when you bought your 2000 shares at 25 bucks each two years ago fifty

01:30

grand and now after SSD shockingly missed [Actual earnings appear on company graph]

01:34

three-quarters earnings estimates in a row while the stocks down to three bucks

01:38

a share basically just the two dollars of cash per share the company holds plus

01:42

$1.00 to value everything else the company has had to abandon its plans to [Person scratches sock]

01:46

expand into scratch-and-sniff dress socks so well this is a big blow but for

01:51

some reason you still believe in the company and want to buy the stock back

01:55

someday you have way more than a month before this pig heals itself if it ever

02:00

in fact does and if you bought it back sooner than a month after you sold it [Man scribbles bought back into calendar date]

02:04

well then you wouldn't get credit for that tax law sale because you would have

02:09

violated the wash sale rule which says that you can [Wash sale rule appears]

02:13

sell a stock and then buy it back within 30 days claiming it as a loss with the

02:18

IRS to then pay lower taxes so you've lost hope you're ready to take your

02:22

losses in lumps and just sell it and that's usually a good thing to do here

02:27

with tax loss selling you just sell your shares for 3 bucks each booking a loss

02:31

of 22 dollars a share times 2,000 shares or 44 thousand dollars in losses [Tax loss selling equation appears]

02:37

well that 44k directly offsets the gains that you realized with chap my

02:42

hide so from the IRS perspective you won't pay taxes on the 70 grand of gains

02:48

you made from the sale of CMH you'll subtract the 44 grand of pig losses from [Tax loss selling formula appears]

02:54

that 70 grand of gains and pay long-term gain taxes on the realized gains of 70

02:59

minus 44 or $26,000 your blue state 35% tax still applies but now it's on a much

03:07

smaller base as you multiply 0.35 times 26,000 and you'll get about 9 grand in

03:12

taxes much easier to digest than the 25 grand you are gonna have to pay

03:17

otherwise so yeah that's what happens when you've got a pig that's a badly in [A pig rolling in the mud]

03:22

need of a wash

Related Videos

GED Social Studies 1.1 Civics and Government
39794 Views

GED Social Studies 1.1 Civics and Government

Fake News
11938 Views

How do you tell fake news from real news?

Finance: What is Bankruptcy?
260 Views

What is bankruptcy? Deadbeats who can't pay their bills declare bankruptcy. Either they borrowed too much money, or the business fell apart. They t...

Finance: What is a Dividend?
1777 Views

What's a dividend? At will, the board of directors can pay a dividend on common stock. Usually, that payout is some percentage less than 100 of ear...

Finance: How Are Risks and Rewards Related?
589 Views

How are risk and reward related? Take more risk, expect more reward. A lottery ticket might be worth a billion dollars, but if the odds are one in...