Posted on June 15, 2006 at 11:58:35:
Should you consider taxes when making investment decisions: buy, hold, sell? How can you minimize their effect on your portfolio?
First, make the most of tax-advantaged accounts. Max out your contributions to retirement accounts. This not only defers taxes on the investments, it also lowers your adjusted gross income so you can qualify for more deductions. It may even help you ward off the dreaded alternative minimum tax.
Take capital losses to offset capital gains. While you can’t buy back an asset sold at a loss for at least 30 days, you can replace it by buying into a similar holding, perhaps in the same sector. Buying mutual funds? Be careful not to make your purchase just before the fund’s distribution date. You’ll get an immediate gain – and an immediate tax liability, too.
Win-win deal: contribute appreciated assets to charity. You get to deduct the whole value yet pay no tax on the appreciation.