Two weeks left in Tax Year 2011!!

Posted on December 15th, 2011

It is almost time to ring in the new year! Which reminds me of one thing? Have I been as tax efficient as I could be in my portfolio this year?

It is that time of the year when you need to be looking at your portfolio and summarizing your realized gains and losses. More importantly, you need to figure out whether you have a net gain or net loss. After all, you might have a tax bill to pay in April. Or, you might have a loss that can reduce your taxable income (subject to the $3000 limit).

But if you have read our book, you know that you have tactics that can help reduce the tax bill you might have due in April. If you have a net realized gain and it is a large gain, you need to check your UNREALIZED losses to see if any are worth taking in 2011 to reduce your tax bill. The tax year ends here in 2 weeks – so you have two weeks to find alternative ways to bring tax losses or gains forward in to 2011.

Remember that when you use options to create hedged positions, you can switch from a collar or married put in to a spread in the same stock and effectively harvest the unrealized loss to move it in to the 2011 tax year. Or, if you are already in a spread position that has a loss, you can roll the spread forward to a new date or strike price. By doing that, you have effectively pulled the loss on the position in to the 2011 tax year.

Remember to check to see if you have any loss carry-forwards from the prior tax year. Of course, those will off-set any gains you have for this tax year also. Make sure to consider that before figuring out how many losses you want to pull forward in to 2011. And remember to look at wash sale rules and consult your tax specialist for your specific situation.


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