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Housekeeping For Your Taxable
Accounts
This is the sixth installment of a 10-week
series on financial matters to address before year-end.
It’s time to tote up your portfolio winners and
losers for 2006!
You’ll pay capital gains tax, as the
name implies, on investments you sold at a profit. If you held the asset for
less than a year – short-term capital gains – you’ll pay ordinary income tax,
which could be as high as 35 percent, depending on your tax bracket, plus your
state rate. Assets held longer than a year are subject to long-term capital
gains tax, a lower rate of 15 percent for most investors and as low as 5 percent
for taxpayers in the two lowest brackets.
The IRS lets you use up to $3,000 in
realized losses to offset profits from investment sales. If you have more than
$3,000 in losses, you can apply the unused amount the following year and any
year after until it’s used up.
Check your 2005 tax return Schedule D to see if
you have any credit for losses remaining. The next step is to review your
trading so far this year to determine whether you have a net loss or net gain.
If your losses outweigh your gains by less than $3,000, you may want to take the
opportunity to sell investments with large unrealized gains, especially if you
need to do so to rebalance your portfolio. If you gained more than you lost, you
may now have a reason to sell underperforming investments that you haven’t had
the heart to cull.
One caveat: Under the wash-sale rule, you cannot
claim a loss on an investment if you buy substantially identical shares 30 days
before or 30 days after the trade. So selling an energy stock and then buying an
energy stock within 30 days before or after disallows the loss, because you
haven’t changed the make-up of your portfolio. You’ve simply generated losses.
Next week: Family Gatherings ‘Round The Estate
Plan | 
