Win from Losing

Cash in on underwater stocks

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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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  • Pchelpme

    Lately this type of startup has given me more freedom

  • This is exactly where I am now…

    • Infinitehi4

      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.

  • Jerome Espy

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

  • Kristina

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

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

  • Great advice

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

  • Great knowledge.

  • Rblack45

    sound advice

  • Excellent advice!

  • Eugenewjr

    Great idea.

  • Lylesezed

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

  • Bobby

    Excellent advice.

  • Quia

    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!

  • Gpragency

    This was great information

  • Md_somers27

    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.

  • Debra

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

  • Donna

    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.

  • Aiesha

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

  • 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.

  • 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.

  • 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.

    • I was in the same boat. Kudos to you for pursuing your Dreams

  • Tettcommunitydevelopment

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

  • Mel

    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.

  • Thank you

  • Start your business while working full-time

  • Oneness4Real

    Thank you for sharing vital inormation!
    God Bless

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

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

  • Forleasadon Harper

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

  • Alicia

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

  • Andrea Paige

    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.

  • Cherry

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

  • Jay

    Good knowledge…

  • Janarthanan Dakshnamoorthy

    Good inputs.

  • Janarthanan Dakshnamoorthy

    Good lesson