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Tax season: Tips for filing and how to maximize investment losses, expert explains

Geltrude & Company Founder Dan Geltrude joins Yahoo Finance Live to break down ways to maximize investment losses from 2022 in tax filings, and to discuss the expectations for the current macroeconomic environment amid the uptick in layoffs.

Video Transcript

- 2022 was tough for finances. The year marked one of the worst performances of the S&P 500 in at least 90 years by some metrics with the stock index falling by more than 19%. But you can use those losses to your benefit when filing taxes. Joining us now is Dan Geltrude, Founder of Geltrude Company helping many make taxes simple as part of our series brought to you by Fidelity Investments.

Dan, great to have you here today. So in light of all the news that we've been talking about not only for the last few hours, but last few days, what are some tax tips that you can give investors who may be sitting on some losses here, may have exposure to some sectors which are getting hurt?

DAN GELTRUDE: So to begin with, you always have to think when it comes to investment strategy it's not how much you make, it's about how much you keep. So investment strategy and tax strategy go together. So if you are sitting on losses, what do you do?

Now, keep in mind there's no tax impact unless you realize those gains or losses. So to begin with, if you have realized capital losses, meaning you've actually sold the stock at a loss, you can offset those losses against your capital gains. But again, you must sell the investment, realize the gain, and then offset the two. Now, you can offset all of your capital gains with capital losses to the extent you have that many capital losses.

Now, if you have losses and you don't have gains to offset, you do have the ability to carry over those losses to future years. And also keep in mind that the limitation of not having gains is $3,000. So let's just say you have $10,000 of capital losses and you have no capital gains. Then, you can use only up to $3,000 of those capital losses.

Now, keep one more thing in mind. What we're talking about is federal taxes. Each state has different rules related to how capital losses are handled. Some states, if you don't use your capital loss in the year in which you realize it, you'll lose it. So it's a little bit of a juggling act between what goes on the federal side and what happens on the state side.

JULIE HYMAN: Hey, Dan. It's Julie here. It is great to get some time with you. And that is really helpful information, I think, after the year that a lot of people had in the markets and how they should be thinking about their gains and losses.

Another thing that is tricky about this current environment is, unfortunately, we're seeing an uptick in layoffs at many companies. And I wonder from a tax perspective, particularly if people, say, lost their jobs after the end of the calendar year, what they need to be aware of from a tax perspective?

DAN GELTRUDE: So to begin with, the first thing, and most important thing to realize, is that there is no tax credit or tax deduction related to losing your job. So you can't think of that say, well, there's going to be some direct benefit there. The other thing to keep in mind if you do lose your job and you start to collect unemployment benefits, that is going to be taxable federally.

Now, there was a period of time where they waived the taxability on unemployment benefits. But that is now over. So keep in mind, any money that you get from unemployment benefits will be taxable federally. And depending on where you are, it may or may not be taxable from a state standpoint.

So, you need to think about your tax liabilities going forward. Because if you don't have any withholding taken from those unemployment benefits, you may end up having to owe unexpectedly when you file your tax return. Now, due to the loss of income when you lose your job, you may qualify for the Earned Income Tax Credit or the Child Tax Credit. But that's not because you're getting unemployment benefits. It's because you would have had a loss of wages, and therefore you may qualify for those two credits.

- Dan, we got another minute here. Just wondering what type of calls you're fielding from clients or just concerns in general and how you're addressing those?

DAN GELTRUDE: Well, the calls primarily right now relate to what's going on with the banks, right? Because people are asking the question, is my money safe? And basically what I tell them is, have you been managing your balances, making sure you're under the FDIC insured limits, number one? And number two, I tell people, look, be concerned. It is not time to panic.

So we don't need everybody running to the banks and say, give me all my money. We are not at that point. But again, you want to be mindful of where your money is and what your balances are.

JULIE HYMAN: Yeah, I would be more concerned if I had $250,000 in cash sitting at my house than sitting in a bank. That's for sure. Dan, great to see you. Dan Geltrude, Geltrude Company Founder with some helpful tax tips today. Appreciate it.

DAN GELTRUDE: Thank you.