Girl who dances in a cage (cagekitten) wrote,
Girl who dances in a cage
cagekitten

Why do we have to pay taxes on an investment that lost money??

So I got one of those dreaded big fat envelopes mailed to me from the IRS. Yeah, you know the one. Not to worry, the amount I owe (due to a mistake I made in my taxes) is about what you would spend for a ticket to a high end show. Nothing to panic over.

What went wrong is that I just don't understand how investments work. And I still don't!!! My money market account has lost almost half its value in the recent economy crash. That thing bleeds money like an open wound so I figured anything that loses money you can't possibly owe money to the IRS for, right? Wrong. It also doesn't help that the Money Market account didn't mail me my 1099's. So in my mind I had nothing but lots of lost money and nothing there to report.

What I found out is that even if you lose some, all or most of your money in an investment you still are earning at least some dividends. And I was supposed to pay taxes on those dividends. So what I'm wondering is, how the heck am I not allowed to write off the loss on the investment as a loss and instead having to pay taxes on the dividends - especially when the dividends don't bring me even close to what the original amount of the investment was before it tanked?
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