Year-End Tax Strategies
By: Suzanne Lako
The Henssler Financial Group Position Paper

There is a short amount of time left to evaluate your tax situation, for realized gains and losses for the current year. This is normally the time of year that many investment advisers look for tax loss selling to assist their clients' with their tax liabilities.

Some investors could have substantial realized gains for the year. If you have realized gains, you can offset them by selling stocks with a loss; however, there are some rules that apply.

Primarily, you should be careful of the wash sale rule, which prevents you from deducting a loss on the sale of a stock if you buy substantially similar securities within the wash sale period. If you sell a stock specifically for a tax loss, you cannot buy it back for 31 days (trade date + 30 days). If this same stock is purchased within this window, the sale no longer qualifies for a tax loss.

You must know the purchase date of the stock you wish to sell for a tax loss. You cannot sell a stock at a loss if you purchased it within the last 31 days. If you decide to sell shares of a stock that you purchased within the last 31 days, you must sell your entire position of this stock for the sale to qualify as a tax loss. This includes all positions in all account(s) under your control. Sometimes, if you sell all positions of the same stock, you may defeat your purpose, depending on the potential realized gain or loss in all accounts you control.

When you sell stocks for a loss, but still want to have exposure to the market, you could purchase spiders (SPDRs) with the proceeds. SPDRs are unit investment trusts that hold a portfolio of common stocks. There are SPDRs for each sector, such as technology, health, energy, financial or utilities. A SPDR that represents the market sector of the stock sold could be purchased for the 31-day period, or a SPDR that represents the entire market (such as symbol SPY) could be purchased. After 31 days, you may sell the SPDR and buy back the stock. To learn more about SPDRs, visit www.amex.com and click the section for ETFs.

Some investors could have realized losses rather than gains. Another aspect of year-end tax planning to consider is selling for gains when there are substantial losses you want to offset. Remember, your losses carry forward, but you may only use $3,000 per year to offset your income. When you sell a stock at a gain to offset your losses, you can immediately buy it back. This increases the tax cost basis of the stock, which in turn could lower any realized gain if the stock is sold in the future.

There are many items that play a part in determining one's overall tax liability for a given year, not just gains or losses on stocks. Always consult your tax adviser and/or investment manager. Together you can determine the strategy that will work best for you and your situation before you sell any stock for a gain or loss. For more information regarding this topic, please contact The Henssler Financial Group at 770-429-9166 or comments@henssler.com.