Fidelity Select Fundranker

Fundranker Blog—March 2009 Archive

Capital Losses

Even though Fundranker realized short-term capital gains on exchanges in the first half of 2008, the across-the-board selloff we experienced in the second half of the year way more than did in those gains. Fundranker realized sizeable short-term capital losses on exchanges later in the year.

If you realized these capital losses in taxable accounts, the tax code calls for applying these capital losses first against realized capital gains, and then against regular income. Capital losses applied against regular income are limited to $3,000, with the remainder being carried over to the following year. The $3,000 limit is applied regardless of your filing status. It seems unfair, but taxpayers who are married must share the $3,000, regardless of whether they file jointly or separately.

When you have sizeable capital losses, being able to use only $3,000 per year against regular income may make it seem like it will take many years to use them up, but when your investments begin to realize gains again, you can use those capital losses much faster. When you carryover your remaining capital losses to a following year, they again are applied first to capital gains and then to regular income. So when the economy and stock market finally recover, and Fundranker begins to realize capital gains on exchanges, the capital losses carried over from 2008 can be applied against them with no limit. If your capital losses carried over from 2008 exceed capital gains for 2009, then they again are limited to $3,000 that can be applied to regular income, with remaining capital losses carried over still again.

Posted 3/25/09 10:29am ET in Fundranker, Tax Tips | Permalink | Comments (0)

SE Health Insurance Deduction

The self-employed health insurance deduction is a valuable "above-the-line" deduction for self-employed individuals. It reduces your adjusted gross income, which cascades to your benefit on Schedule A itemized deductions as well as various tax credits and possibly on your state income tax return. For 2008, new rules make it easier than ever to claim this deduction if you are a partner with net earnings from self-employment or a more-than-2% shareholder in an S corporation. The rule change is retroactive, so partners and more-than-2% shareholders in S corporations may be able to amend past returns to take advantage of this deduction, as well.

For purposes of this deduction, a self-employed individual is a person who files Schedule C, Schedule C-EZ, or Schedule F with Form 1040, a partner with net earnings from self-employment, or a more-than-2% shareholder in an S corporation with wages reported on a Form W-2. You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents.

The insurance plan must be established under your business. This is easiest for self-employed individuals who file Schedule C, C-EZ, or F as the insurance plan can be either in the name of the individual or in the name of the business. Essentially, for a self-employed individual, you are your business, so it is the same thing. For self-employed individuals, the deduction generally is limited to the net profit from your business less one-half of your self-employment tax and your self-employed SEP, SIMPLE, and qualified plans deduction.

If you are a partner with net earnings from self-employment or a more-than-2% shareholder in an S corporation, the insurance plan can be in the name of the business or, and this is what is new for 2008, in your name. Your partnership or S corporation must either pay the premiums or reimburse you for premiums you pay, and either way, the premium amounts must be reported as income on Schedule K-1 (partnership) or Form W-2 (S corporation). If your partnership or S corporation reimburses you for only part of the insurance premium amounts, then only that part of the premium amounts is reported as income and is deductible.

You cannot include in your self-employed health insurance deduction health insurance premiums for any month you were eligible to participate in any employer subsidized health plan at any time during that month, even your spouse’s employer, and even if you didn’t participate. This rule is applied separately to plans that do and do not provide long-term care insurance.

The Form 1040 instructions, for some reason, mention self-employed individuals only in passing, give details for S corporations but fail to explicitly mention that the insurance plan may be in the name of the individual, and leave the information out completely for partners with self-employment income. Publication 535, on the other hand, does a thorough job of describing all these situations, so you can find the information, but you have to dig for it.

The IRS doesn’t allow you to double up on deductions, so any deduction you take for self-employed health insurance premiums cannot also be deducted as an itemized deduction on Schedule A of Form 1040. If your self-employed health insurance deduction is less than the total amount of premiums you paid for health insurance, however, you can deduct the remaining premium amount on Schedule A, but it will be subject to the 7.5% AGI reduction of medical and dental expenses.

If you are self-employed, a partner with net earnings from self-employment, or a more-than-2% shareholder in an S corporation, don’t miss out on the new and improved self-employed health insurance deduction.

Posted 3/19/09 11:30am ET in Tax Tips | Permalink | Comments (0)

Real Estate Taxes Deduction

Until 2008, you had to itemize deductions to be able to deduct real estate taxes from your taxable income. If you took the standard deduction, you had to be satisfied that it included your real estate taxes. Now for 2008 returns, you can take an additional standard deduction up to $500 ($1,000 if married filing jointly) for real estate taxes you paid in 2008. The instructions for Forms 1040 and 1040A have a nifty little worksheet to help you figure your standard deduction. Essentially, it adds your real estate taxes, up to $500 ($1,000 if married filing jointly), to your standard deduction.

For taxpayers who usually itemize deductions, instead of comparing your itemized deductions to your standard deduction, you will need to compare them to your standard deduction plus up to $500 ($1,000 if married filing jointly) for your real estate taxes. When you itemize deductions, you can claim the entire amount of real estate taxes you paid in 2008. If your real estate taxes are considerably higher than the $500 or $1000 limits, it may seem counterintuitive to take the standard deduction plus the limited real estate taxes deduction, but you still need to consider it. For example, if your itemized deductions include, say, $2,500 of real estate taxes, but exceed your standard deduction by only $400, then your standard deduction plus $500 ($1,000 for married filing jointly) would be larger and would reduce your taxable income more than your itemized deductions would.

Posted 3/11/09 9:56am ET in Tax Tips | Permalink | Comments (0)

Nasdaq Composite Breaks Lower

On March 5, 2009, the Nasdaq Composite Index broke through its November 20, 2008, low to close at a level last seen in March, 2003, joining the Dow Jones Industrial Average and the S&P 500 Index, which broke through their November 20 lows about two weeks ago. The DJIA since has retreated to levels last seen in April, 1997, while the S&P 500 has fallen to levels last seen in September, 1996. As of the close on March 5, the Nasdaq Composite Index remains about 30 points over its March, 2003, low. The Nasdaq Composite Index, heavily weighted toward technology stocks and now set back six years, seems to be weathering the storm better than the DJIA, now set back 12 years, and the S&P 500, now set back 13 years. Perhaps the technology sector will lead us out of this recession.

Posted 3/5/09 9:28pm ET in Market | Permalink | Comments (0)