Thinking About Beginning To Take Losses To Offset Gains In Portfolios? Don't. Many Of Your Clients May Be Better Off Realizing As Many Gains This Year As Possible

Wednesday, September 05, 2012 07:00
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Thinking About Beginning To Take Losses To Offset Gains In Portfolios? Don't. Many Of Your Clients May Be Better Off Realizing As Many Gains This Year As Possible

Tags: investment strategies | Taxes | year end tax planning

Traditional tax planning is being literally turned on its head this year as the 3.8% surcharge for Medicare hits upper income taxpayers. The surcharge will be levied on investment income and some tax planners are advocating doing just the opposite of what investors would normally do for their end-of-year planning.

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The capital gains tax rate will increase from 15% to 18.8% next year because of the surcharge. It could reach 23.8% if Congress does not act to extend current laws. This means investors should be realizing gains on their investments this year instead of taking losses and pushing gains off until next year.
 
Or they should donate the assets to charities who probably will not have to pay taxes on the gains. The 3.8% tax will apply to individuals earning more than $200,000 per year and to couples earning more than $250,000.
 
The proceeds of the tax will help fund Medicare. The new law is one of the few segments that is considered a certainty because Congress has so far failed to take action regarding the tax law expiration.
 
Another tactic that may be attractive is to sell positions in installments rather than all at once. This means the gains would be realized over a longer period of time and may fall under the thresholds that would bring the surcharge into play.

 

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