If you choose to invest in stocks to build wealth, you may be able to reap the benefits in the form of taxes, even if your stock has become worthless in today’s unstable market. If your shares lost all of their value before you were able to sell them, you might be able to claim them as worthless stock on your tax return. For your stock to be classified as “worthless”, it must have zero value. You are not necessarily due this tax break simply because the company whose stock you hold went bankrupt, because the stock is not trading, or because the stock is only worth a few pennies.
However, if your stock is truly worthless, you can write it in on your federal income tax return as a capital asset sold on the last day of the tax year. The IRS may require some documentation to show that the stock is truly worthless; the documentation must show that there is no hope that you, the investor, will get any return for your holdings. You will also have to show a reasonable date when the stock became worthless. You will report this loss on line 1 or line 8 of Schedule D. Which line you use depends on whether it was short-term or a long-term holding. If it became worthless during that tax year, you will treat it as if you sold it on the last day of that year, which may affect how you classify it.
You will use part I for a short-term stock and part II for a long-term stock. In columns (c) and (d), you will write “worthless”. In column (f), you will write your loss, which is generally your basis in the stock. In the end, your “worthless” stock could be of some worth to you after all, at least when it comes to a tax write off!