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Dear Tax Talk,
I’m a senior widow who has been doing taxes with tax software for many years. During the past several years, I’ve been able to use a capital loss carryover, but that will end this year. I am fearful that my ordinary taxes will increase this year and in the future by the $3,000 carryover amount that I used in past years to decrease my tax bill. I understand that my tax bill will now go up, but will it go up $3,000?
In other words, as the seeming “luxury” of the carryover deduction is done, does that mean I am in for a whopping increase in my ordinary tax bill this year, all other things being equal?
Yes, this is a naive question. I guess I’m getting too old for these kinds of calculations, which used to be easy. In any case, I’m not sure I ever really understood the basic concepts of an arcane tax system anyway. Help, I’m scared!
No, your tax bill will not go up by $3,000 as a result of no longer having a $3,000 capital loss carryover deduction.
You don’t need to be scared; all you need to do is understand the difference between a tax deduction and a tax credit. The loss of a tax deduction means that your taxable income will now be $3,000 higher, and the amount of additional tax that you will owe depends on what your marginal tax rate is now without the deduction.
With this information, I hope you will feel more confident when preparing your tax return. However, you are not alone in your frustration with the tax system — it is complicated. Having said that, there are many places where you can get assistance with your return.
The IRS has a Volunteer Income Tax Assistance, or VITA, program to help low-income people, the elderly and persons with disabilities. The sites are located at schools, libraries and other convenient sites. You can call 1 (800) 906-9887 to find the location nearest you.
Thanks for the great question and all the best to you.
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To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.