In my E-Trade account I have 100 shares of a company that is now listed on the pink sheets and last sold for $0.0001 per share. I tried to sell the shares, but nothing happened. I lost $319 and want to take a tax loss. What can I do?
You generally need to sell shares to be able to write off the loss. But if the company goes completely out of business and there isn't anything left for shareholders, then you can deduct the loss as a worthless security without selling it.
But, as you've discovered, sometimes a company is in limbo -- with the shares still technically trading but nobody buying them. In that case, your broker may help take the shares off your hands so you can write off the loss.
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Many brokers have special rules for buying nearly worthless stock from customers. E-Trade, for example, charges a $5 commission to buy shares in a worthless-securities liquidation, which provides you with a trade confirmation for your tax records.
Charles Schwab offers a courtesy sale for people who can't sell their shares. Schwab adjusts the commission to be the same amount as the sale price of the shares, so the net ends up being $0.
TD Ameritrade can purchase lots of shares for $1. Clients are charged the standard online commission of $9.99, minus the $1 received for the sale of the shares. If the client does not have enough cash in the account to cover the cost of the commission, TD Ameritrade will work with him or her to settle the trade. Clients cannot complete this transaction online and must call TD Ameritrade's toll-free number.
Call your brokerage firm to find out the rules and procedures for dealing with nearly worthless stock.
Richard Humphrey, the reader who wrote to us, went to the online service center at E-Trade's Web site, found a screen with E-Trade's offer to buy his worthless stock, and paid a $5 commission. "I took care of my problem in two minutes," he says.
If you complete the transaction by December 31, you'll be able to deduct the loss on your 2008 taxes.
For more information about the tax rules for worthless stock, see Writing Off Worthless Stock.
Has the Treasury acted on the required-minimum-distribution rules for 2008?
On Thursday, December 18, the U.S. Treasury Department decided not to grant relief in 2008 from the rules that require people age 70½ and older to take minimum withdrawals from their IRAs, 401(k)s and other retirement plans. See Treasury to Seniors: Drop Dead for details.
If you're older than 70½, you'll have to take a distribution by December 31, or face a steep penalty. The amount you must withdraw is based on your age and the balance in your retirement account as of December 31, 2007 -- even if the account has lost a lot of money since then. Use our Required Minimum Distribution calculator to figure out how much money you'd need to withdraw. Also see IRS Publication 590, Individual Retirement Arrangements, for more information.
If you have to take a withdrawal from a traditional IRA but don't need the money, you could donate some or all of your required minimum distribution - up to $100,000 - directly to a charity tax free. See Time for an IRA Distribution for more information. Contact the charity now to find out what you need to do to complete the transaction by the December 31 deadline.
And there is some good news for the future -- Congress did pass a law suspending the minimum distribution requirements for 2009. See No IRA Payouts Required in 2009 for more information.