I will have a stock loss of $16,000 this year. I know I can deduct $3,000 each year from my taxes. Can I lower my withholding on retirement income by $3,000? Issues?

[flajunkie]

I am concerned that the IRS may consider my reduced withholding as a way to somehow mess with my taxes in future years.

[rjs · Accepted solution]

The $3,000 of capital loss is deducted from your income, not from your tax. It does not reduce your tax by $3,000. The reduction in your tax depends on what tax bracket you are in. For example, if you are in the 22% tax bracket, the $3,000 subtracted from your income would reduce your tax by $660 (22% of $3,000). If nothing else changes, you could reduce your withholding by $660.

Reducing the withholding should not cause any problems in future years, as long as you continue to have enough tax withheld to avoid an underpayment penalty.

[SteamTrain]

As far as TTX software is concerned, You just enter that stock sale/loss  in the software (along with any other stock,bond,mutual fund sales you may have) down in the Investment Income area on the Wages&Income page. 

The software will first apply the loss against any other gains you might have for the year, and then, if any is left over, then "up-to" $3000 will be subtracted from any other ordinary income you have for the year.  Any remaining loss $$ will be carried over to next year's taxes. 

[flajunkie]

Gosh, I did not think I could feel any worse about this. $660 per $3,000 loss? I never thought of it that way.

But thank you for the answer.

I will never buy anything in the stock market again.

[Opus 17]

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@flajunkie wrote:

Gosh, I did not think I could feel any worse about this. $660 per $3,000 loss? I never thought of it that way.

But thank you for the answer.

I will never buy anything in the stock market again.

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Well, that's rather silly, especially considering your "retirement income" is almost certainly invested in the stock market, either as a 401k or a company pension.  However, unless you dedicate yourself to becoming a stock market expert, most people are better off investing in a one or more mutual funds, rather than trying to pick individual stocks.  

Also, if you did have other investments in stocks or bonds, you could sell investments that have gained in value, to create gains that can be offset by the loss.  Your loss can be used to offset any investment gains plus an extra $3000.  If you have no gains, you can only deduct $3000 per year until the loss is used up, but if you can sell something else to create a gain, the loss can offset that gain. 

[flajunkie]

It may be silly to you, Champ, but every situation is different. For me, I have no 401K. At my age, I rely on my retirement pension from the USAF and Social Security.

I have no other stocks. The company I invested in was ASTRA, a startup that is (supposedly) building a new class of small rockets. It was valued at $2B, but I'm beginning to think the founders would always go the way they have. I don't think it's an accident.

And just to be certain, the stock market is simply one fool selling to another. Anyone who looks at it knows that with minor exceptions, once the stock is sold, the company has no real obligation to care if the stock goes up or down.

I thought it would go up, but more importantly, I thought it would do something good in an industry I supported for many years. I was wrong.