You are expecting Uncle Sam to add some insult to your injury regarding your 2008 tax return. Your taxable account nest egg has decreased substantially and you have experienced a major investment loss. Despite that you know the government is going to want their slice of the pie, and you are already grimacing in pain.
Taxes are a necessary evil but luckily there are tax laws in place that may benefit you, the American taxpayer. The Federal tax codes are constructed to let you use investment loss to minimize your tax bill. Seriously, the decline in your total net worth will become a little bit easier to swallow come April 15.
If you purchased some investments and sold them at a loss, that investment loss can be used to offset some capital gains taxes on your other investments. Thus, the tax scales can be tipped a bit in your favor. Please note, to utilize this strategy, the sale of the investments must have been completed by the end of the tax year in question.
There are actually many savvy investors who purposely take losses to offset the taxes they may have to pay. They closely monitor their portfolios during the course of the year and try to balance their capital gains with some losses. It is part of their overall strategy, and it is not recommended that anyone intentionally invest their money to accrue losses. It is just good to know if it does happen that there is a bit of a safety net in place to make the scales tip a bit more in your favor.
The amount of loss investment that can be written off on your tax returns depending on your individual financial situation. It is best to consult your tax professional to figure out how to make the bitter pill of tax time a bit easier to swallow.