A tax straddle is a strategy used to create a tax shelter.
For example, an investor with a capital gain manipulates investments to create an artificial loss from an unrelated transaction to offset their gain in a current year, and postpone the gain till the following tax year. One position accumulates an unrealized gain, the other a loss. Then the position with the loss is closed prior to the completion of the tax year, countering the gain. When the new year for tax begins, a replacement position is created to offset the risk from the retained position. Through repeated straddling, gains can be postponed indefinitely over many years.
References
- "Passthrough Entity Straddle Tax Shelter". IRS.gov. Retrieved Jan 9, 2015.
- Brabec, Barbara (Nov 26, 2014). How to Maximize Schedule C Deductions & Cut Self-Employment Taxes to the BONE -. Barbara Brabec Productions. p. 107. ISBN 978-0985633318.
Further reading
- Publication 17 Your Federal Income Tax
- Form 1040 series of forms and instructions
- Social Security's booklet "Medicare Premiums: Rules for Higher-Income Beneficiaries" and the calculation of the Social Security MAGI.
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