Here's One Holiday Sale You Don't Want to Miss

There's a different kind of sale you might want to check out before year end. It's one of the best kind of holiday sales. One where you can trim your tax bill before April 15!
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I know you're busy checking your list twice and hitting all the sales at this time of the year.

But there's a different kind of sale you might want to check out before year end. It's one of the best kind of holiday sales. One where you can trim your tax bill before April 15th!

I've talked about tax-loss harvesting in a few other articles before. It is a technique that allows you to recover a portion of your losses on a poor investment by claiming a tax loss when you sell. But beware, there's a snag if you're not careful.

Losses and the Wash Sale Rule
You might gasp when you see your statement after an investment goes down. However, for tax purposes it really doesn't matter where the investment is as long as you still own it. Gains and losses on paper are only real once you sell the position.

If you happen to have lost money on the investment, you can offset any gains you made elsewhere on your portfolio with the losses from this investment. Plus, you can use up to $3,000 of any additional capital losses to offset against other types of income, including interest and even salary income!

Now to get this great little holiday sale, you have to have a couple of things happen. First, you have to sell your investment before the end of the tax year, which is usually Dec 31 for individuals. Second, you cannot buy back that same stock for 30 days. If you don't wait, then the wash sale rule is triggered. That means you don't get the advantage of the tax loss. Boo! That little waiting period keeps investors from selling for a loss and getting a tax break and buying it back immediately. Why would the government want to give you a tax break on every losing investment you have?

Hit the Sales Early
There is an effect that tax-loss selling may cause. Toward the end of the year, you might notice some of your losing investment declining even further. Only to move higher in January. Some think that is due to year end tax-loss harvesting. So be careful, if you are a procrastinate and sell late in December and buy back in late January. You may buy back after prices have risen in January and lose potential gains.

It doesn't happen every year. So the moral here is to get your tax-loss selling done early. For instance, if you sell stocks in November, you'd be able to buy them back in late December, after more than 30 days. At that point, you might be able to pay a lower price than you receive now, if further tax-loss selling activity depresses share prices further. By getting a jump on the crowd, you can benefit at their expense.

Nobody likes losing money on any investment. Unfortunately they all can't be winners. These techniques allow you to turn a bad situation into a great little Holiday Sale! Happy Tax-Loss Selling!

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