While the “fiscal cliff” negotiations continue at Washington’s normal pace (i.e. the speed of molasses rolling uphill), there are some certainties. Tax rates are going up next year. In most years, tax professionals advise clients at year-end to speed up deductions and defer income. Not this year!
You may wish to consider locking in capital gains. Let’s assume you own 100 shares of Acme, purchased 10 years ago at $10 per share. Today, Acme is trading at $50 per share, so you have a theoretical profit of $4,000. Assume you sell the shares today and buy 100 shares of Acme tomorrow. You will lock-in your capital gain of $4,000 (less commission) at today’s lower capital gains rates; future profits, though, will be subject to the higher capital gains rates that are coming (and the additional Obamacare taxes on investment income). One worry that doesn’t exist in this situation are the “wash sale” rules; those only apply when you have a loss.
This is not for everyone, though. Reasons why individuals might not want to do this include:
– Planning on selling this many, many years from now;
– Stock will be held and passed on to children (or other descendants), allowing for “step-up” in basis;
– Stock price likely to fall in future months;
– Can’t afford to pay any tax this year; and
– Various other reasons.
Again, this is just a possible strategy you may wish to discuss with your tax professional and stock advisor.
Tags: 2012.year.end