If you're like most people, you probably think the right time
to start thinking about your taxes is when April rolls around on
your calendar. But by making the most of your bad investments
starts thinking about taxes
, you can get a much better result for your portfolio's returns
than you would if you procrastinate. Let's take a look at this
tax-saving strategy and why it might pay to do it sooner rather
Make the most of your losses
U.S. stocks are up huge so far in 2013, and so many investors
haven't really had to think very much about losses in their
portfolios. Yet if you've been unfortunate enough to own stocks
in lagging industries like commodities or in companies that have
faced specific challenges of their own, then you need to start
thinking about the
benefits of doing your tax-loss selling
before your peer investors start thinking about it.
Losing money in stocks is never fun, but the silver lining is
that you can take capital losses by selling losing stocks that
you can then use to offset other investment income. If you have
capital gains on other investments, then you can use losses to
offset those gains. If you don't, then those losses can apply to
reduce taxable income up to $3,000, potential offsetting income
from interest, dividends, or your salary. Depending on your tax
bracket, smart use of capital losses can save you thousands of
dollars on your tax bill.
Why not wait?
Most taxpayers wait until November or December to start thinking
about tax-loss selling. For tax purposes, it doesn't make any
difference when during the year you sell as long as you get it
done before Dec. 31. But when many investors are all in the same
boat, all the selling pressure can actually depress losing stocks
even further. Getting your selling done early can help you get a
better price by putting you ahead of your peers. Moreover, with
some mutual funds aiming at Oct. 31 as their deadline to get
sales done, thinking about it as early as July isn't a bad
It's not hard to identify good candidates for tax-loss
selling. Throughout the commodities industry, plunging prices
have caused big share-price declines.
, for instance, has lost
more than half its value
since last October as the company has suffered from a big decline
in demand for metallurgical coal and iron ore for steel
production. It's also had to slash its dividend and curtail some
of its production facilities in order to keep costs down. Similar
stresses have hit
Freeport-McMoRan Copper & Gold
, with the
April plunge in gold prices
only exacerbating adverse trends that the companies have faced
for more than a year now.
In addition to commodities, some stocks have sunk on
has lost about 20% since last October on concerns from both
doctors and regulators about the efficacy and value of its
robotic surgical systems for basic procedures. In retail,
continues to struggle even with a new person in the CEO seat.
These stocks all look like good candidates to see follow-through
tax-loss selling throughout the remainder of the year.
You might also find loss candidates among bond funds. With
interest rates having risen sharply, bond prices have fallen, and
so claiming losses by selling bond funds could help you recoup at
least a portion of your losses.
Finally, one extra reason to act quickly with tax-loss selling is
that if you've held a stock for nearly a year, taking the loss
while it qualifies as a short-term capital loss can save you more
money. Short-term gains have a higher tax rate, so if you can use
losses to offset those short-term gains, you'll save more. But if
you wait until you've held a losing stock for more than a year,
you'll have to use losses to offset long-term gains first, which
don't provide as much in savings. For instance, on the stocks
above, I mentioned returns since October -- those losses are
short-term in nature now if you bought during that month, but
they'll be long-term by the time most people think about tax-loss
selling this coming November or December.
So even if you normally wouldn't think about taxes in summer,
it's worth taking a look at your portfolio to identify potential
tax-loss candidates. Doing it now could save you a bundle in the
Tax-loss selling is just one way you can try to tackle the
tax increases that took effect at the beginning of 2013. To get
more ideas on how to take control of your taxes and reduce your
tax bill, read our brand-new special report, "How You Can Fight
Back Against Higher Taxes." Inside, The Motley Fool's tax
experts run through what to watch out for in doing your tax
planning this year. With its concrete advice on how to cut
taxes for decades to come, you won't want to miss out. Click
here to get your copy today -- it's absolutely free.
Tune in every Monday and Wednesday for Dan's columns on
retirement, investing, and personal finance.
You can follow him on Twitter @DanCaplinger.
Fool contributor Dan Caplinger owns shares of
Freeport-McMoRan Copper & Gold. The Motley Fool recommends
Intuitive Surgical. The Motley Fool owns shares of
Freeport-McMoRan Copper & Gold and Intuitive Surgical. Try
any of our Foolish newsletter services free for 30 days. We Fools
may not all hold the same opinions, but we all believe that
considering a diverse range of insights makes us better
investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights
reserved. The Motley Fool has a