Smart Tax Strategy for Investors

By: Don Heggen
Submitted: 2007-01-17 16:16:37
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Although tax strategy considerations should not be the dominant factor in the investment decision making process, neither should they be ignored.

Every investment decision has tax consequences so why not make the most of them? After all, we don't make the rules, but we do have to play by them. Why not, if given the choice, maximize the advantages and minimize the disadvantages?

Smart tax strategy will do that for us.

The results of investment transactions, for most traders and investors, are classified as capital gains or losses. Capital gains and losses are further classified as short term or long term. Short term, as of this writing, is less than a year. Long term is a year or more. It wasn't always that way and it may change again in the future. Tax laws are always changing.

So, we actually have four categories: Short term gain vs. short term loss and long term gain (good stuff) vs. long term loss (bad stuff).

Long term gains are taxed less than short term gains. Long term losses are less desirable than short term losses.

Here's why: Short term losses are subtracted from short term gains to determine net short term gain or loss. So far, so good.

Next, long term losses (the bad stuff) are subtracted from long term gains (the good stuff) to determine net long term gain or loss which also decreases the good stuff and increases the bad stuff! Did you catch that?

Then the net short term gain or loss is offset against the net long term gain or loss to determine the over all net short or long term gain or loss. Confused? Good! You're supposed to be.

Can we turn this around to our advantage? Yes, we can!

How? Simple. Smart tax strategy to the rescue.

Determine, right now, that you will NEVER, repeat NEVER allow any loss to become long term.

Make sure all losses remain in the short term category.

Look what this does to our calculation: No more bad stuff. Bad stuff all gone. Only stuff left is good stuff.

Profitable investors will always have either net short or long term capital gains while unprofitable investors will always have net short term capital losses.

Either way, smart tax strategy gives us our most tax advantaged position.

Good for us. We deserve it.

Because No One Cares More About Your Money Than You

http://dynamic-stock-market-strategies.com

Good trading, Don Heggen

Article source: Expert Articles

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