Question. The IRS issues published letter rulings and private letter rulings. Are there important differences between the published ones and the private ones?
Answer. The IRS explains that taxpayers generally may rely on published rulings in determining how the agency will view their own transactions that arise out of similar facts and circumstances. It cautions that private rulings are different. They may be relied upon only by the recipients, and they aren’t precedents.
Nevertheless, it can prove helpful for taxpayers and their advisers to know about private rulings. The favorable ones provide them with some indications that the agency will look kindly on their proposed transactions. The unfavorable ones alert them to possible agency disapproval of those transactions.
Double tax break for freelancers and other self-employed persons. The write-offs that they claim on Schedule C don’t just reduce the amounts they show as profits on Schedule C, thereby reducing the amount of their business incomes subject to income taxes. They also reduce the amount of their business incomes subject to self-employment taxes, as calculated on Schedule SE. Many self-employed individuals and other freelancers get nicked more for self-employment taxes than for income taxes.
“Wash sale” rule merely delays claiming tax loss. The rule prohibits a tax deduction for a loss on the sale of stocks or other securities if you buy” substantially identical” stock within either 30 days before or 30 days after the sale date (Internal Revenue Code Section 1091)
But you’re entitled to add the disallowed loss to the cost of your new stock for purposes of figuring gain or loss on a subsequent sale. And when you sell that new holding, the disallowed loss will decrease any profit or increase your loss at that time. Consequently, the wash sale restriction delays, but doesn’t permanently take away, your tax loss.
It’s possible to unload the stock to nail down an immediate loss deduction for tax purposes and still maintain your position in one of two ways. You’re always free to sell and allow at least 31days to elapse before you repurchase. Of course, the obvious hitch is that the stock may increase in value during the waiting period.
The other course of action is to “double up,” that is, buy the same amount you already hold, wait at least 31 days, then sell the original shares. Your risk is that your loss doubles if the stock declines while you sweat out the wait. On the plus side, your profit doubles if the stock price increases in the interim.
Still another way to accomplish your goal, if you’re unwilling to wait 31 days, is to sell your stock and buy shares of a different company in the same or a similar industry. Unsurprisingly, the drawback to this maneuver is that the substitute investment may fail to perform as well as the original investment.
