By Robert Bianchi
If your investment portfolio is due for a review and perhaps
some realignment, you may be able to reorganize your portfolio and
cut taxes too. Here are some suggestions to consider.
If your investment portfolio is due for a review and perhaps some realignment, you may be able to reorganize your portfolio and cut taxes too. Here are some suggestions to consider.
Consider donating appreciated stock to your favorite charity
Generally, you’re allowed to claim a charitable deduction for the fair market value of the stock and avoid tax on the gain. The charity can then sell the stock tax-free.
Consider selling securities
The tax code allows you to offset up to $3,000 of net capital losses annually against other taxable income ($1,500 if married filing separately). Selling enough “winners” or “losers” to reach this figure may result in the maximum tax benefit for 2006. But if you decide to repurchase securities you sell, beware of the “wash sale” rule. If you buy the same security within 30 days before or after selling it at a loss, the loss is not deductible. This rule does not apply if you sell at a gain. Let’s look at a couple of examples.
Example A: Sally has realized $5,000 of taxable gains in 2006. She decides to dispose of losers and sells enough to generate $8,000 in losses. Her $3,000 net loss should be fully deductible in 2006.
Example B: Jack has realized losses of $10,000. He still owns a stock with large unrealized gains, and he expects it to appreciate further. He decides to sell enough shares to generate $7,000 in gains and immediately repurchases the shares. Combining the $10,000 of losses with the $7,000 of gains gives him a $3,000 net loss which is fully deductible. Jack’s cost is the commission he pays on the sale and repurchase.
Careful planning and choosing among the different techniques can help you reduce taxes when reorganizing your investment portfolio. Before you reorganize your portfolio, contact us if you would like specific tax-saving guidance.
