Give Yourself A Holiday Tax Gift

Make year-end moves that can pay off next April

that’s substantially identical; that would invalidate your tax loss. “You might put those funds into an exchange-traded fund (ETF),” Baker says. “An ETF offers broad exposure to a specific area of the market so it has the potential for upside. After you’ve held the ETF for 31 days, long enough to avoid a wash sale, you can sell the ETF and go back into your original holding.”

Suppose, for example, you sell a tech stock at a loss. You can immediately reinvest in a tech ETF such as iShares Dow Jones US Technology (IYW). You’ll probably capture any rebound in the tech stock you sold. After 31 days, you can sell the ETF and repurchase that tech stock, if you wish.

Remember the less fortunate.
As we approach the holiday season, you’re probably thinking about making charitable donations. Traditionally, a winning strategy has been to give away appreciated stocks and funds held more than one year. You’ll get a tax deduction for the full value of the shares and your capital gain tax obligation will disappear.

That’s still a great plan–if you have appreciated stocks to give away. This year, you’re more likely to have losers than winners.

“You shouldn’t donate securities trading at a loss to a charity because you forfeit the ability to deduct the loss against gains and ordinary income,” says Johnson. “Instead, you can sell the investment and donate cash. You’ll get a tax deduction as long as your total donations for the year do not exceed 50% of your adjusted gross income–or 30%, if you’re donating appreciated securities.”

Pages: 1 2