Year-End Stock Advice

The last week of the year is usually quiet on Wall Street with stocks generally up, however, the Dow Jones Industrial Average was down 51 points today. Most investors are not worried about today’s losses and think the market will recover by weeks end. For the average investor a few things to consider prior to years end are:

1 - If you are currently in a loss position and are not optimistic about the stock’s recovery; consider selling by December 31, 2004 for tax purposes. Your capital losses can be written off against capital gains for the year, thus reducing your tax liability. If your capital losses exceed your capital gains, the losses can written off against “Other Income” on your tax return up $3,000 a year for married filing jointly and $1,500 a year for single tax filers.

2- If you are in gain position and are contemplating selling the stock; consider postponing that action until after the first of the year to delay the realization of the taxable gain until tax year 2005. This allows you keep more money in your pocket now versus handing it over to IRS right away. You get the benefit of compounding interest not the IRS.

3- After you have deferred the maximum into your 401k, consider maxing out your IRA or ROTH IRA contributions. The IRS will allow you to fund your IRA or ROTH IRA for tax year 2004 until April 2005. This allows taxpayers more flexibility in saving for retirement.

4 – Most importantly remain calm. Don’t panic if stocks lose some of their recent gains this week. If your investment plan is long-term you will be fine. For those investors looking to reap short-term gains; keep your eye more closely on the market so that you can buy / sell at the best time.

For more information on capital gains tax laws follow the links below:

IRS Captial Gains Rules

Yahoo Tax Center - Capital Gains

Ivestopedia 5 Tips For Investors