One year-end strategy to lower your tax requirement is tax loss harvesting. Tax Loss harvesting involves selling securities at a loss to offset a capital gains tax liability. The goal is not to own investments that go down in value, but Tax loss harvesting can be used to limit the recognition of short-term capital gains, which are normally taxed at higher federal income tax rates than long-term capital gains.
There are three benefits to this strategy. First, tax losses represent an interest-free loan that defers capital gains taxes you would otherwise owe into the distant future, and can even eliminate them entirely when you die. Second, after offsetting realized gains, you can use any remaining tax losses to deduct $3,000 from your regular income taxes each year, which can mean an extra $750 or more in your pocket if you are in the 25 percent federal tax bracket. Third, any remaining losses are rolled over into the subsequent years, so each year until your losses are used up, you can defer your capital gains and apply up to $3,000 against your income
Here is an article from the Bogleheads which details the strategy.http://www.bogleheads.org/wiki/Tax_loss_harvesting
Determine what other year end planning activities you should do by taking the 3 Minute Year End Financial Planning Checklist. http://bit.ly/1aPl18e
Tax Loss Harvesting
