|Course 206: The Best Investments for Taxable Accounts|
|Other Ideas for Tax Relief|
Here are some other strategies you can practice to limit how much of your taxable account Uncle Sam gets to take.
Buy and hold.
Pay attention to holding periods.
Thus, if you have a choice between selling a winning investment that you've held for six months and one that you've held for two years, unloading the latter will result in a lower tax hit. Or, if you're considering selling an investment that you bought 11 months ago, waiting a few extra weeks could be worth your while from a tax standpoint.
Offset capital gains with losses.
That's why it's sometimes a good idea to think about selling some of the losers in your portfolio near the end of the year. If you still like these investments for the long term, you can buy them back after waiting 30 days. This rule prevents "wash sales," in which somebody sells a stock to claim a capital loss but then repurchases it immediately to retain ownership.
Pay attention to cost basis when selling shares.
For example, suppose you buy 100 shares of a stock at $10 a share. The stock rises to $20, and you buy another 100 shares. Eventually the stock reaches $30, and you decide to sell 100 of your shares.
Without specific instructions, most brokers and fund families would sell the first shares you bought, and your capital gain would be $2,000, or the $3,000 sale price minus your $1,000 cost basis. But if you specify that you want to sell the shares you bought for $20, your capital gain will only be $1,000, or $3,000 minus a $2,000 cost basis.
There's one catch: You usually need to specify in writing which shares you're selling. That can be difficult, especially with discount brokers. Still, it's worth the effort if you've bought shares at very different prices and need to sell some of them.
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