With the end of the year coming faster than you can say: “bailout,” stock investors should take a hard look at their holdings and potential tax bombs that may be lurking.
A quick review of taxes on investments. If you sell a stock or most any other security before you have held it one calendar year, you pay regular income tax rates on the profit.
If you hold a stock or security for at least one full year before you sell, any profit is taxed at long-term capital gains rates (for tax year 2008, the top rate you may pay is 15 percent).
Tax Warning
NOTE: These are the broadest of tax guidelines and may not apply to every situation or taxpayer. Always consult a competent tax adviser before making any decision with tax consequences.There are several circumstances where you face potential tax liabilities:
- You sell a stock that although down for the year, still represents a profit
- You jump on market volatility and grab a quick profit
- You are at or near retirement and need to convert investments to cash
- You sell stocks and buy bonds or other income securities
If you have already committed one or more taxable transactions, you still have an option to offset any potential tax liability.
You can sell a security at a loss and possibly offset some of your potential tax liability.
Tax Laws Complicated
Tax laws are complicated and may not be a simple as my illustrations suggest. Many factors must be considered. Don’t attempt this strategy without checking with tax counsel.If you get the go-ahead from your tax planner, look for stocks or qualifying securities that may have a difficult time recovering, even in a robust market.
Don’t let yearend catch you unprepared for tax consequences.
