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If you have alot of paper losses from investments in the past and will have no income while you are in school, keep them on paper rather than make them into capital losses.
You can deduct 3k in capital loses each year from your income, but for students who don't have incomes (or have low incomes), the tax benefit of this capital loss is negated (since you are in a lower tax bracket, if you have to pay any taxes at all).
Assuming you will be in a much higher tax bracket in 5 or 6 years, hold on to those worthless shares/investments until then. When you are earning in the 30% tax bracket (probably 40% after state and city income taxes), you can cash in your losses and deduct them then. Effectively, you are recouping 40% of those losses through taxes.
ie: If you baught 100 shares of a stock in 1999 for 100 (10,000) and now the stock is worth 10 (1000). Say you needed that $1000 today. If you sold today you have 1000 cash in your pocket and capital losses of 9000. Based on current tax law, you can carry this over for 3 years, meaning that each year, you are mandated to deduct 3k from your income before you pay taxes on it.
Situation 1: No Income: You deduct 3k per year. Since you have 0% income rate, you get nothing.
Situation 2: low income: If you have a small amount of income, say $10,000.. enough to pay only 10% income taxes, you get to write off 3k/ year, so in effect, you paid tax on $7,000, rather than $10,000. Since you didn't pay the income tax on that 3000, you saved 10% of 3k, which is $300. Your net savings over 3 years is $900.
Situation 3: High Income and you sell shares in 6 years, when your tax rate is 40% (ie: if you are earning 120k a year). If you write off 3k/ year when you are earning 120k, you pay taxes on only 117k, so effectively, 3k is free from taxes... which earned you a 40% return on that 3k.. which is $1200. Your net savings over 3 years is $3600.
So the take away is.. defer those loses and keep them on paper until you make alot of money.
This is even advantageous even if you have to take out student loans. If you take out unsubsidized stafford, you will be paying around 5% interest per year... even compounded over 6 years it will not reach the 40% savings you will get with the tax writeoff.
*Caveat: This strategy only works if you don't expect your investments to lose any more money (ie: if you baught lucent at 80 in 1999 and now its 2.50, it likely wont drop to 0..so its worth the risk).
Also, check with your accountant before making any financial decisions. I make no guarantees about the effectiveness of this strategy with your specific situation.
You can deduct 3k in capital loses each year from your income, but for students who don't have incomes (or have low incomes), the tax benefit of this capital loss is negated (since you are in a lower tax bracket, if you have to pay any taxes at all).
Assuming you will be in a much higher tax bracket in 5 or 6 years, hold on to those worthless shares/investments until then. When you are earning in the 30% tax bracket (probably 40% after state and city income taxes), you can cash in your losses and deduct them then. Effectively, you are recouping 40% of those losses through taxes.
ie: If you baught 100 shares of a stock in 1999 for 100 (10,000) and now the stock is worth 10 (1000). Say you needed that $1000 today. If you sold today you have 1000 cash in your pocket and capital losses of 9000. Based on current tax law, you can carry this over for 3 years, meaning that each year, you are mandated to deduct 3k from your income before you pay taxes on it.
Situation 1: No Income: You deduct 3k per year. Since you have 0% income rate, you get nothing.
Situation 2: low income: If you have a small amount of income, say $10,000.. enough to pay only 10% income taxes, you get to write off 3k/ year, so in effect, you paid tax on $7,000, rather than $10,000. Since you didn't pay the income tax on that 3000, you saved 10% of 3k, which is $300. Your net savings over 3 years is $900.
Situation 3: High Income and you sell shares in 6 years, when your tax rate is 40% (ie: if you are earning 120k a year). If you write off 3k/ year when you are earning 120k, you pay taxes on only 117k, so effectively, 3k is free from taxes... which earned you a 40% return on that 3k.. which is $1200. Your net savings over 3 years is $3600.
So the take away is.. defer those loses and keep them on paper until you make alot of money.
This is even advantageous even if you have to take out student loans. If you take out unsubsidized stafford, you will be paying around 5% interest per year... even compounded over 6 years it will not reach the 40% savings you will get with the tax writeoff.
*Caveat: This strategy only works if you don't expect your investments to lose any more money (ie: if you baught lucent at 80 in 1999 and now its 2.50, it likely wont drop to 0..so its worth the risk).
Also, check with your accountant before making any financial decisions. I make no guarantees about the effectiveness of this strategy with your specific situation.
