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This year I have a net Long-term Capital Gain of $6483 for which I would owe $1296.60 in taxes (20%). I am planning on selling a stock which would give me a net Short-term Capital Loss of $861.

My question is this:

Would I then use the $861 dollar for dollar to offset the $6483 gain - thus reducing my Long-term Capital Gain to $5622 upon which I would owe $1124.4 in taxes (20%)?

or...

Is the $861 used to offset the $1296.60 in taxes that I owe on the $6483 Long-term Capital Gain - thus reducing my tax bill to $435.60?

I assume that the first scenario is what I have to do... but it seems like I'm "wasting" the short-term loss by offsetting the long-term gain which is only taxed at 20% Perhaps I would be better off cashing in some stocks I own that have had big short-term runups... so I could use the short-term loss to offset the short-term gains which are taxed as ordinary income.

Sorry for the naive question, but this is my first year where I've had to pay any capital gains taxes. I think they should do away with them entirely!
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It is the former, as you suspected.

If I may be so bold, I'll give two pieces of free advice.

1) Don't sell winners just to offset losers. Just as, if it was cold today it's likely to be cold tomorrow, a stock that's doing well today will still be doing well tomorrow, probably.

2) If capital gains taxes are done away with, that means the Big Softy in Redmond will be paying next to no taxes. Is that what you really want our country to be about?
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>>2) If capital gains taxes are done away with, that means the Big Softy in Redmond will be paying next to no taxes. Is that what you really want our country to be about?<<

I think he could put that money to better use than the Gov't.

Ryno
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"I think he could put that money to better use than the Gov't." Ryno

LOL. I think almost anyone could put the money to better use than the Govt! Thanks for the humour.

"Is that what you really want our country to be about?"

Yes, or don't you remember your history? We had a rather large Tea Party about taxation.
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Actually it seems to me that the tea party was more about "no taxation without representation"

but I'm just a poor Johnny foreigner here and my knowledge of American History is limited. Still as I am not allowed to vote here may be I can get out of my taxes that way?

Anders
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Still as I am not allowed to vote here may be I can get out of my taxes that way?

What way? Having a tea party? ;^)

Actually, taxation here has been in effect off and on since 1791 although the framework for the current structure was not put into effect until 1913. The position of Commissioner of Internal Revenue was created by Congress in 1862 and the Bureau of Internal Revenue was created in 1863.
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