Four Tax-Saving Strategies for Advisors

Many investors that bought into highly touted social media stocks like Facebook, Groupon, and Zynga are sitting on big losses. Now more than ever is a good time to cut taxes by these dumping losers and repositioning the assets.

If an investor sells a losing stock and re-purchases the same security within 30-days, they won’t be able to deduct the capital loss. But if they sell the loser and re-purchase an ETF in the same industry sector, they can harvest their losses without running afoul of the IRS’ “wash sale” rules. This strategy also helps the investor to avoid missing out on any potential rebound in stock prices by staying invested.

Advisors can also help their clients to offset capital gains with capital losses. If the losses are bigger than the gains, or if there are no gains, up to $3,000 of net losses can generally be deducted. Also, additional losses can be carried over into future years.

3. Beware of Mutual Fund Distributions

Don’t let your clients get soaked by mutual funds with large year-end distributions in their taxable accounts. Before buying new fund shares, check the fund provider’s website to see when the mutual fund is planning to distribute its year-end gains. It’s best to wait until the year-end distributions have occurred before purchasing new shares.

Typically, most funds make distributions in December. This tax tip also applies to ETF investors using active management or strategies like long/short, currency, or derivatives. Traditional equity ETFs are still a smart hedge against nasty tax surprises.   

4. Combine Deductions

Simultaneously bunching up charitable contributions with other deductions might be a smart move for certain investors. For instance, taking charitable donations in the same year as itemized deductions would help to maximize tax savings.

Every taxpayer’s situation is different, but a careful analysis with the client may help to uncover smart opportunities.