Tax Strategies:
If You Plan to Sell,
Do It Now!
by Adam Martin, Editor
Market Logic
Most
people think of April as "Tax time." They struggle through the
first half of the month worrying whether they'll finish their returns by
April 15. Foremost in their minds is how much they detest lining the IRS'
pockets, or how big a refund they have coming. But smart investors avoid
last-minute struggles and emotionally taxing ruminations by embracing "Tax
time" right now. Yes, now. It's Novemberthe time to take steps designed
to minimize your tax bill. To wit:
Make
a concerted effort to balance gains against losses. Any realized gains on
stocks and funds (including taxable capital gains distributions received
from funds) can be offset by realized losses, and you should have some losses
because many stocks and funds are well below their highs. Also, sell poor
performers this month. Don't wait until December, when a flood of tax selling
depresses already depressed issues. That's the time to buy back any attractive
stocks or funds you've sold, as long as you satisfy the 30-day waiting period.
follow this strategy and you'll reap the biggest gains from the so-called
January Effect in which smaller stocks typically score their best gains
of the year.
Calculating
gains or losses from the sale of stocks and funds can be tricky. Generally,
the most favorable method involves "specific identification."
Pick the specific shares that you want to sell now. By selling those with
the highest cost basis, you minimize your taxable gains. To address potential
IRS questions, written confirmation of such sales is typically required.
Try faxing, e-mailing, or writing a sell-instruction letter to your broker
or fund, and request a confirmation.
If
you are self-employed and want to defer taxes on a portion of your 1999
earnings by making a deductible contribution to a Keogh plan, you must open
the plan by December 31. But you have until as late as April 15, the tax
return filing date, to contribute to it.
Planning
to make charitable contributions to cut your tax bill? Try donating shares
of stock or mutual funds that have made money and that you've owned for
at least 12 months. You can deduct those shares' entire market value and
avoid paying any capital gains taxes on their accrued value. That's a double
bonus.
Editor's
Note: Adam Martin is editor of
Market Logic, 2200 SW 10th St., Deerfield Beach, FL 33442. 1 year, 24 issues,
$200.
