I probably should start off by saying I am not a tax accountant so please verify all claims for yourself on your own unique experience.  There, now that I’ve made my wife happy I want to talk about the best tax savings often missed by the new or small investor.

Have you ever wondered why there was massive year end selling when all the new to investing books tell you you haven’t lost any money until you sell?  Well this is generally true there is some times when selling for a loss is worth it.  If you sell enough of your stock to gather up $3000 in losses you can deduct this from your ordinary income. (Read IRS Publication 544 for specific details.)

Who wants to lose $3000 in order to save $810 (at 27% tax bracket) you might ask?  Well technically you’re already down that $3000 – so here is how the transaction should take place:

  1. Sell Shares – try to choose your shares so that you make the minimal amount of trades possible.  You don’t want to save $810, but spend $150 in trading fees to get it.
  2. Write off stock loss on your Schedule D against your ordinary income.  (Talk to your accountant)
  3. Wait 30 days at least from day of stock sale.  If you repurchase any of the same shares that you counted for a loss within 30 days then your loss doesn’t count.  You don’t want to eat the extra trading commissions and possible raise the ugly audit flag.
  4. Repurchase same shares if you like (you may even get a better deal if the market stays dead) or move into new positions.
  5. Invest the gained $810!
  6. Tip me if you like for your new found wealth :)

Anyone have any other savings on taxes that can best mine for a down market?  Throw them in the comments below.

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