Vested Stock Tax Withholding

Is it possible to offset vested stock tax holding if stock lost value when I sold the same calendar year?

For example, basically tax was withheld at vesting. But the stock has since lost value and the owner has sold it all this year. The owner also has other trading losses in their portfolio.

Normally a trader can offset any trading gain with loss in the same year (and carry forward the loss if still > $3000), but is it possible to use trading loss to offset the vested stock tax withholding (which was a huge chunk).

If this is not possible, is there any way to manage the tax obligation, or anyway to hedge so that one can offset the income from vesting with trading losses in stock?


Tax Answer on Vested Stock Tax Withholding

When the stock vested, that locked-in the ordinary income (compensation) element of the stock award. Any fluctuation in value in the stock from that date forward would be a capital gain or loss and as you point out, capital losses can only offset up to $3K in ordinary income a year.

Did you make a Section 83(b) election when you were first awarded the shares though? This would have been something that you signed & filed no more than 30 days after having the (at that point, unvested) shares awarded to you. You would have given the signed form to your employer, mailed one to the IRS and also attached a copy to your tax return for that year. If you did make an 83(b) election, there could be good news.


Vested Stock Tax Withholding

An 83(b) election is kind of a hedge. You pay the taxes up front so that your tax bill later is lower. However, if the stock becomes worthless or you don’t stick around long enough for it to vest, you don’t get to claim a refund or anything. It’s a trade off. Pay now for a chance to pay less later.




Withdrawing from Roth IRA Early After Contribution

What will happen if you withdraw money from a Roth IRA shortly after you contribute to it? For example, if you contributed $1500 to Roth IRA, withdrew $1495 a month later.


Will someone get hit with a fee for early withdrawal?

The IRS is really the best source on this. This is the page that covers IRA’s. The penalty (and tax) free nature of withdrawals is found by combining the following text and  intrepreting it:

A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.

  1. It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and

OK, so we know your contributions are not “qualified”. From there:

If you receive a distribution that is not a qualified distribution, you may have to pay the 10% additional tax on early distributions as explained in the following paragraphs….

Other early distributions.
Unless one of the exceptions listed below applies, you must pay the 10% additional tax on the taxable part of any distributions that are not qualified distributions.

OK, so now we know that you must also pay a 10% additional tax on the taxable part of your distribution (withdrawal). So now we just have to figure out what’s taxable.

How Do You Figure the Taxable Part?

To figure the taxable part of a distribution that is not a qualified distribution, complete Form 8606, Part III.


Form 8606

Ok, that kind of sucks – they used to have that on there IIRC. It had to do with ordering (explained on that page) and in the example it shows that contributions, ordered first and already taxed, are not taxed when withdrawn. We can actually see on the instructions for 8606 the IRS now just lets you ignore it (sort of… should still be listed on the 1040):

If, in 2013 or 2014, you made traditional IRA contributions or Roth IRA contributions for 2013 and you had those contributions returned to you with any related earnings (or minus any loss) by the due date (including extensions) of your 2013 tax return, the returned contributions are treated as if they were never contributed. Do not report the contribution or distribution on Form 8606 or take a deduction for the contribution


Exceeding Roth IRA Annual Allowance

What happens if you contribute more to an IRA than is allowed by law?

The short answer is that there shouldn’t be a tax “penalty” for a Roth IRA principal withdrawal. You would, however, have to pay capital gains taxes on any earnings your excess contribution accrued, just like you’d have to pay on any non-tax advantaged investment. Most taxpayers would be in a better situation if they monitored how much they contributed to their accounts closely.


IRA Excess Contribution

You can withdraw before April 15 with no penalty for the excess contribution. Normally it’s 6% a year for each year you keep an excess contribution in the account. You may be penalized if you had gains on the excess contribution when you withdraw those. For example, if you deposited $6,000 in one year which had gains and is now $6,600. You need to take out the extra $500 contribution at no penalty and then the pro rata amount of the gains on the excess, which would be $50 in this case. You would pay tax on $50 plus a 10% penalty for withdrawal.


Exceeding Roth IRA Annual Allowance

That said, if it’s just that you’re over the income limit and not that you contributed more that $5500, you probably just want to recharacterize the contribution as a traditional IRA contribution and then do a rollover to a Roth IRA.


IRA Recharacterization

If you do the recharacterization, per the IRS, it “will be treated as having been originally contributed to the second IRA, not the first IRA. Presuming you do this before you file your taxes for 2013, you shouldn’t need to do anything extra to inform the IRS. But, assuming you have a work retirement plan (e.g. 401k), you can’t take a tax deduction for that traditional IRA contribution now, and will want to do a backdoor Roth conversion  which will lead to you filing Form 8606 when you do your taxes for the year.

Taxpayers who recharacterize Roth conversions and IRA contributions are faced with the daunting task of calculating the earnings (or losses) on the amount, if such services are not provided by their IRA custodians. Proper calculation of the earnings/loss is as important as the recharacterization itself, and failure to include the correct amount could cause adverse consequences.


Recharacterization Deadlines

You generally can recharacterize your rollover or conversion by October 15 of the following year, regardless of whether you requested an extension to file your tax return. For example, for your conversion to a Roth IRA in 2013, you have until October 15, 2014, to recharacterize. This deadline applies even if:

  • you did not request an extension to file your 2013 tax return, and
  • you file your return on or before April 15, 2014.

Converting Roth 401(k) to a Regular Brokerage Account

Converting a Roth 401(k) to a regular brokerage account will be a taxable event and the taxpayer will need to properly report this to the IRS in order to avoid steep penalties and fines.


Converting Roth 401(k) to a Regular Brokerage Account

This would not happen if you roll a Roth 401(k) into a Roth IRA. There are no tax consequences for this transaction because it is treated as a continuation of the previous account.


Moving 401k to a Taxable Brokerage Account

When you convert a Roth 401(k) into a regular old brokerage account, that is the equivalent of withdrawing it from the IRS viewpoint. If a taxpayer is younger than 59 1/2, there will be a 10% early withdrawal penalty imposed. However, only the amount in excess of Roth 401(k) participant contributions would be subject to the 10% nonqualified distribution penalty and income tax. For example, if your roth IRA consists of a $50,000 balance, $45,000 of them are your own contributions and $5,000 in earnings, then only $5,000 would be subject to the 10% penalty and income-tax.


Direct rollover from 401k to IRA

With a direct rollover from 401k to IRA, there is no taxable event because it is just changing accounts. Again, it would be different if you took the money out for personal use (taxed [if Traditional] + 10% penalty). This is important to remember when planning your financial affairs. There is no recognition of gains or losses until you actually pull money from the account.

For example, if you made $50,000 this year and rolled over your 401k, you’d still be at 50,000 for the year. If you transfer a regular 401k to a Roth ira then you have to pay taxes on the distribution as income. They do not count as capital gains. Generally, you can only deduct capital losses up to the annual limit of $3,000. Therefore, if you have loses, you will have to carry forward those losses into future years unless there are other capital gains that can be used to set-off the amount. This could be an important to consider when planning for retirement and converting a Roth 401(k) into a normal brokerage account.

Top 10 Tips about IRA Contributions

IRA retirements accounts are a great way to plan for retirement. As the years winds down, it is important to begin assessing what kind of contributions you may be making to a retirement plan. You can contribute to your traditional IRA at any time during the year. You must make all contributions by the due date for filing your tax return. This due date does not include extensions. For most people this means you must contribute for 2012 by April 15, 2013. If you contribute between Jan. 1 and April 15, you should contact your IRA plan sponsor to make sure they apply it to the right year.


Top 10 Tips about IRA Contributions

The great thing about a traditional IRA is that, even if you make contributions in the following tax year, the IRS lets you take a deduction for some of these IRA contributions on your prior-year tax return (you must make the contributions by mid-April). In other words, if you are filing your 2014 taxes, the contributions you make to a traditional IRA through mid-April of 2015 may be deductible. This is why your account administrator has until May 31 to send Form 5498 to you.

There is still time to make contributions to your traditional Individual Retirement Arrangement, better known as an IRA.


Below are the top ten things you should know about money you put aside for retirement in an IRA.

  1. You may be able to deduct some or all of your contributions to your IRA and you also may be eligible for a tax credit equal to a percentage of your contribution.
  2. Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means contributions for 2008 must be made by April 15, 2009.
  3. The amount of funds in your IRA are generally not taxed until you receive distributions from that IRA.
  4. To figure your deduction for IRA contributions, use the worksheets in the instructions for the form you are filing.
  5. For 2008, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts: $5,000 or the amount of your taxable compensation for the year. Taxpayers who are 50 or older can contribute up to $6,000.
  6. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit.
  7. You cannot deduct an IRA contribution or claim the Credit for Qualified Retirement Saving Contributions on Form 1040EZ; you must use either Form 1040A or Form 1040.
  8. To contribute to a traditional IRA, you must be under age 70 1/2 at the end of the tax year.
  9. You must have taxable compensation, such as wages, salaries, commissions and tips. If you file a joint return, only one of you needs to have compensation.
  10. Refer to IRS Publication 590, Individual Retirement Arrangements, for information on the amounts you will be eligible to contribute to your IRA account.

You may also qualify for the Savers Credit, formally known as the Retirement Savings Contributions Credit. The credit can reduce your taxes up to $1,000 (up to $2,000 if filing jointly). Use Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the Saver’s Credit.

You can get a traditional IRA if you’re under age 70 1/2 and receive taxable compensation.

  • Wages, salaries, and tips
  • Sales commissions
  • Professional fees
  • Bonuses
  • Self-employment income
  • Military compensation while serving in a combat zone tax-exclusion area
  • Alimony or separate maintenance payments included in gross income


Income not included as compensation for IRA purposes includes:

  • Profit from the sale of stocks or other property
  • Rental income
  • Pension or annuity income
  • Deferred compensation

Both Form 8880 and Publication 590 can be downloaded below or ordered by calling 800-TAX-FORM (800-829-3676).


Additional IRS Resources on IRA Accounts:

Seven Things you Should Know When Selling Your Home

People who sell their home may be able to exclude the gain from their income. If you have a capital gain on the sale of your home, you may be able to exclude your gain from tax. This rule may apply if you owned and used it as your main home for at least two out of the five years before the date of sale. If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free. If you are married and file a joint return, the tax-free amount doubles to $500,000. The law lets you “exclude” this much otherwise taxable profit from your taxable income. (If you sold for a loss, though, you can’t take a deduction for that loss.)


Seven Things you Should Know When Selling Your Home

Important note about the Premium Tax Credit. If you receive advance payment of the Premium Tax Credit in 2014 it is important that you report changes in circumstances, such as changes in your income or family size, to your Health Insurance Marketplace. You should also notify the Marketplace when you move out of the area covered by your current Marketplace plan. Advance payments of the premium tax credit provide financial assistance to help you pay for the insurance you buy through the Health Insurance Marketplace. Reporting changes will help you get the proper type and amount of financial assistance so you can avoid getting too much or too little in advance.


Here are seven things every homeowner should know if they sold, or plan to sell their house.

  1. Amount of exclusion. When you have gain from the sale of your home, you may be able to exclude up to $250,000 of the gain from your income. For most taxpayers filing a joint return, the exclusion amount is $500,000.
  2. Ownership test. To claim the exclusion you must have owned the home for at least two years during the five year period ending on the date of the sale.
  3. Use test. You also must have lived in the house and used it as your main home for at least two years during the five year period ending on the date of the sale.
  4. When not to report. If you are able to exclude all of the gain from the sale of your home, you do not need to report the sale on your federal income tax return.
  5. Reporting taxable gain. If you have gain which cannot be excluded, it is taxable and must be reported on your tax return using Schedule D. Deducting a loss. You cannot deduct a loss from the sale of your home.
  6. Rules for multiple homes. If you have more than one home, you may only exclude gain from the sale of your main home and must pay tax on the gain resulting from the sale of any other home. Your main home is generally the one you live in most of the time.

For more information see IRS Publication 523, Selling Your Home below, or by calling 800-TAX-FORM (800-829-3676). Remember, when you sell your home and move, be sure to update your address with the IRS and the U.S. Postal Service. File Form 8822, Change of Address, to notify the IRS.


Additional IRS Resources on Selling Your Home:

  • Publication 5152: Report changes to the Marketplace as they happen  English | Spanish


IRS YouTube Videos on the Tax Consequences of Selling your Home:

IRS Podcasts on Selling Your Home:

Quick Tax Facts About Capital Gains and Losses

Almost everything you own and use for personal or investment purposes is a capital asset. Examples include a home, personal-use items like household furnishings, and stocks or bonds held as investments. When a capital asset is sold, the difference between the basis in the asset and the amount it is sold for is a capital gain or a capital loss.

Do you have questions about reporting gains and losses on your tax return?

Additional information on capital gains and losses is available in Publication 550Investment Income and Expenses, and Publication 544,Sales and Other Dispositions of Assets. If you sell your main home, refer to Topics 701 and 703, and Publication 523Selling Your Home


Here are some facts from the IRS about Capital Gains and Losses:

  • Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
  • When you sell a capital asset, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss.
  • You must report all capital gains.
  • You may deduct capital losses only on investment property, not on property held for personal use.
  • Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
  • Net capital gain is the amount by which your net long-term capital gain is more than your net short-term capital loss. Net short-term capital gains are subject to taxation at your ordinary income tax rate.
  • The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income and are called the maximum capital gains rates.
  • If your capital losses exceed your capital gains, the excess can be deducted on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately).
  • If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
  • Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040.

Quick Tax Facts About Capital Gains and Losses

Capital gains rates are designed to encourage long-term investing. Most people can get a significant advantage from holding stock investments for more than one year:


Tax Bracket Capital Gain Tax Rate
Short Term Long Term
10% 10% 0%
15% 15%
25% 25% 15%
28% 28%
33% 33%
35% 35%
39.6% 39.6% 20%

Short term gains on stock investments are taxed at your regular tax rate; long term gains are taxed at 15% for most tax brackets, and zero for the lowest two.

For more information about reporting capital gains and losses, get Publication 17, Your Federal Income Tax, and Publication 550, Investment Income and Expenses, available below or by calling 800-TAX-FORM (800-829-3676).


Links related to reporting Capital Gains and Losses:

Publication 17, Your Federal Income Tax

Publication 550, Investment Income and Expenses (PDF 516K)