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I was trying to find the answers to cap gains strategies for end of year tax selling, and through various sites I got a better understanding and then came up with these ideas. I would appreciate comments and feedback to see if I am full of it ;-)

ST gains are taxed at you marginal rate, LT gains at 15%. For this discussion I will assume you make enough so your marginal rate is 25% or higher.

If your situation is:

ST Gain + LT Gain : Offset the ST gain to $0 by taking some short term losses to reduce taxes at your marginal rate. (Avoid cutting into your LT gains with ST losses, but remember, net gains also increase AGI, so reducing total net gains may help reduce possible AMT issues).

ST Loss + LT Gain : Net LT gain taxed at 15%, so it may not be good to take more ST losses. But, take some ST Gains to reduce ST net to $0 so it does not offset the favored LT Gains @15%.

ST Gain + LT loss : Take either more LT losses or ST losses to reduce ST Gains taxed at higher marginal rates.

ST Loss + LT Loss : If losses are less than $3000, you can take more LT losses (or ST losses) to reduce taxes at higher marginal rate.

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Any net loss of more then $3000 gets carried over, so no need to go out of your way to sell and take more than that in one year.

These are simple, basic strategies, I am sure there are lots of longer term complicated ways to plan.
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These are simple, basic strategies, I am sure there are lots of longer term complicated ways to plan.

Well, one man's simple & basic is another man's "why would I put myself through that to possibly pay more in commissions than I save in taxes plus have myself out of a loser that I see great prospects for at the exact moment when it takes off?"

Since I'm from Kansas I tend to look at things more simply. If I have a paper loser in my portfolio it's because I think it has promise as an investment, not because I'm waiting to harvest a tax benefit. If I had lost faith in the investment (been there, done that) I would have sold it back when that happened. Instead of looking at the $10,000 I invested, I'm better off looking at the $1,000 that I can get out of it to invest someplace more promising.

I will confess to spending a couple of minutes looking at selling a winner and buying it back next year to take advantage of the 0% taxation of LTCG for us paupers in the 15% bracket. I decided that the after-tax-and-commission cash in my pocket wasn't worth the time.

BTW, I'm not ducking your question about outdated FAQ's. I'm not an official Fool on this board, so it's not my place to comment.

Phil
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If you want to do by yourself you might want to look at

http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00001222----000-.html

Good luck

The Postageman
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Well, one man's simple & basic is another man's "why would I put myself through that to possibly pay more in commissions than I save in taxes plus have myself out of a loser that I see great prospects for at the exact moment when it takes off?"

Since I'm from Kansas I tend to look at things more simply. If I have a paper loser in my portfolio it's because I think it has promise as an investment, not because I'm waiting to harvest a tax benefit. If I had lost faith in the investment (been there, done that) I would have sold it back when that happened. Instead of looking at the $10,000 I invested, I'm better off looking at the $1,000 that I can get out of it to invest someplace more promising.


Ah, but let's say I think banks are bottoming out and I could not decide on whether to buy Citi or Bank of America. So, maybe I bought BAC and have a $1000 loss. Now I can sell BAC for $8 commission and buy C and still be in the banks I like, but now I can write off $1000 against my income, so if I am at a 35% rate, then that is $350 dollars I don't need to send the gov. Minus $8 commission, I have $342 saved (but commission increases basis, so I get 35% off that cost too). Also, I might well believe that I can buy BAC back in 31 days and avoid the wash rule. Who am I to say a stock is "about to take off", if I was that smart I would not be sitting on a loss ;-)

I don't buy and sell based on taxes, but at the end of the year, if I have $10,000 in short gains and the gov will take $3500 of that, then I might look at some ST loss positions and consider using those to my advantage.

P.
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If you want to do by yourself you might want to look at

http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00001222----000-.html

Good luck

The Postageman

Stampman,

Thanks for your reference to this site that defines what a short term gain or loss is, I guess it was not clear in my posting that I already knew that information. I was presenting some strategies I was contemplating and I was asking for people's opinions and feedback to enhance my knowledge and the knowledge of this board. I thought some people might be doing similar things and would share their experiences and ideas.

P.
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