Unemployed? You still could face tax issues
Ella Mae celebrates Elvis, who is still popular -- and a big earner -- 36 years after his Aug. 16, 1977, death

Turning financial failures into tax-saving successes

Happy National Failures Day!

Yeah, I have no idea how official this is or who came up with this lame loser unconventional commemoration. But I've seen a couple of comments about it on social media and, as the saying (or television commercial) goes, if it's on the Internet it has to be true. Bonjour!

Plus, Fail Blog and its Facebook page are two of my favorite ways to waste time get insight into the myriad ways people do, or don't, accomplish life's tasks.

So I'm celebrating Nation Failures Day, inspired by Thomas Edison's wise words: "I haven't failed. I've found 10,000 ways that don't work."

Epic-fail-texas-footwear-failTax failures: When you stop to think about it, failures and taxes go hand-in-hand or, based on the mislabeled Texas/taxes flip-flops there to the right, toe-to-toe.

There's the overly complex and ever-growing tax code, which most Americans consider an unmitigated fail.

Then there are the many efforts of lawmakers in Washington, D.C., to revamp the Internal Revenue Code, which right now look to be heading down Failure Avenue.

Of course, all the mistakes we taxpayers make on our 1040s because of the aforementioned failures go into our personal fail baskets. At least we can, in most cases, correct them by filing an amended return.

But there are a couple of failures that actually could pay off at tax time: capital and business losses.

Stock losses can be tax savings: Nobody likes to admit they've picked a dog of a stock. So we often hold onto bad assets, hoping against hope that they'll turn around. Soon.

In many instances, however, it's to our financial and tax advantage to take a deep breath, admit that we fell for that worthless tip and sell the losers.

Then you can turn that investing fail into a tax win by claiming the loss against any capital gains you might have that tax year.

If you don't have any gains, not to worry. You can deduct up to $3,000 of your capital losses against ordinary income for the tax year. Any excess can be carried forward for use in reducing your taxable income in future tax years.

When Schedule C losses can help: Then there are those of us who have our own businesses. Making sure that they make money is always a constant challenge.

We definitely don't want to run an unprofitable operation year after year. Not only is that horrible for our egos and bank accounts, but it also arouses Internal Revenue Service suspicions.

When a company isn't profitable, tax auditors might think you set it up solely to create tax losses and will want to take an extra long look at your company's filings.

That said, a down year isn't necessarily bad, especially if your business is a side operation and you have other income to help pay the bills. When your Schedule C or C-EZ one year is in the red, that loss goes on your 1040 (line 12) just like all the profits did in other years.

That said, here's to successful and taxable self-employment income for us all.

And on this National Failures Day 2013, at least we know that when things don't go so well with our portfolios or at our companies, we still might be able to get a tiny bit of tax good out of it.

You also might find these items of interest:


Feed You can follow this conversation by subscribing to the comment feed for this post.

The comments to this entry are closed.