Most of us are passive investors. Passive investors are people who own stock, mutual funds, corporate bonds, etc. Legally we are limited partners in these companies where we invest, and we rely on these companies’ management to make smart decisions and on the market to accurately assess the value of our investment. And if we lose money in our investment, we are allowed to write off only a portion of these losses. Publically traded companies have a $3,000 limitation per year.
When our investment is a private company, there are substantial limitations for the tax recognition of losses.
Investors should not be penalized when they invest in the backbone of our economy and the venture loses money. Their losses should be recognized which in turn puts more money back in the hands of the investor where the taxpayer can invest again.