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Turning financial failures into tax-saving successes

August 15, 2013

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.

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The More Tax Posts tab at the top of this page will take you to, well, more tax posts. You also can search below for a tax topic. 

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TAX-SAVVY WAYS 
TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

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