Thank You Congress!

The Congress giveth and taketh. Last year Congress sliced the capital gains rate to 20% creating a very nice tax savings for many investors. However, they required that you hold your securities longer to get the long-term gain rate (18 months as opposed to the previous 12 months). Now Congress has given us back the shorter holding period. Effective January 1, 1998, you only need to hold securities 12 months to get the 20% gains rate (and some low tax bracket investors will get the lower 10% gains rate!)

Even with this gift, some investors will overpay their taxes on investments by failing to understand these issues:

• Before year-end, sell stocks with losses in order to generate a deduction or offset to gains. If you want to hold the stock long term, simply buy it back 31 days later. Discount commissions make this a very inexpensive tactic which could save you thousands in taxes. 
• If you want to start liquidating some stocks with large gains, you may be able to sell a little each year and pay only a 10% gain tax (for those in the 15% federal income tax bracket).
• Take advantage of low-income years by liquidating stocks with a profit and you could potentially cut your gains tax in half.

Don’t expect your accountant to call and tell you what to do. If you want to potentially save thousands in taxes, bring in a list of your stocks with the current value and original cost basis and a copy of your 1997 tax return. You could be sitting on a wealth of tax savings that could disappear on December 31.