What will be the top 3 recommendation of actions to do to your portfolio before year end?
- Take losses
If your realized gains this year are more than your realized losses, see if you want to take some losses to offset your gains. If you have stocks with unrealized losses, that you're not crazy about, now would be a good time to sell, since the losses you take will reduce your tax liability this year. You probably shouldn't sell a stock that you absolutely love, but if you have a stock that you just like, you should consider selling for the tax benefits, and buying something that you like about as much.
- If you have losses you couldn't take last year, because they were over $3,000, remember to count those with your sales for this year.
- If you have net short-term capital gains, you should try especially hard to offset those, since those are taxed at the same rate as ordinary income. See the instructions for Schedule D for more info about what offsets what first.
- If you a sell a loser, and you buy it back within 30 days before or after the sale, this is a Wash Sale, and you can't recognize the loss. (It adjusts the basis of the buy transaction.
- Rebalance your portfolio. Gains and losses may have caused your portfolio to become too concentrated in certain stocks, industries, or asset types, and you should take steps to get back to your desired allocation. (But if selling winners would increase your tax bill, wait until after the new year to do it)
- Give Back! If you have a stock portfolio, there are lots of people who are less well-off than you are, and lots of organizations which could use your support. If you're looking for somewhere which will put your money to good use, may I suggest the evaluations at GiveWell.
Bonus: Contribute to (or start!) your IRA for 2010. This doesn't have to be done have to be done by the end of the year; you can make your 2011 contribution in 2010, before you file your tax return (by Apr. 15 at the latest, even if you get an extension.)