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Thursday, December 9, 2010

Buy and Sell Options to Minimize Taxes

One faces a little difficulty when it comes to planning taxes at the end of the year. But one has to face the fact and the earlier one act the lower will be the tax bill. This proves to be true when one has stocks which have had appreciable gains throughout the year.

In spite of the instability in the stock market some investors make nice gains throughout the year. If the time is good enough to sell a part of the stocks that have been appreciated then it would be beneficial to lock such gains. What one needs to keep in mind is that the market may not persistently be volatile so it is better to make some gains before the market crashes because of uncertainties.

One can buy and sell stock options to minimize taxes. Unfortunately an investor will have to pay capital gain taxes for selling stocks with gains. Larger the capital gains larger will be the capital gains tax, even though capital gains tax is lower than other regular taxes. For example a 10% tax on the $ 10,000 gain would mean paying $1000 in tax.

But one can think of strategies to minimize taxes. If one tries to balance capital gains with capital losses one can ward off taxes. Since there is no limit on the sum of losses this can be used to balance capital gains. For example if you have made $ 10,000 gains and $ 10,000 losses in that particular year. The capital losses will counterbalance the gains and you will not have to report the capital gains made for that year on tax returns.

So the strategy of buying and selling stock options is the best way to minimize taxes. So if you have stock that you wish to sell and make gains keep a track of the losses too that you have made. This way, your capital losses will come in use while counterbalancing capital gains.

So the best way to make up for the losses is by equalizing it against gains. So look out for the stocks that you wish to sell and take the best advantage of taxes. Buying and selling stock options minimize taxes and balance ordinary income. Buying and selling stock options minimize taxes by counterbalancing capital gains. Buying and selling stock options not only minimizes taxes helps to lock the gains in your favor. So assess your portfolio to check whether you would prefer unloading your losses.

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