- 1). Wait until after you have held your stock for at least a year before selling it. This way you will pay tax at the lower capital gains rate instead of having the gain taxed as ordinary income. The capital gains rate can be as low as 5 percent, depending upon your filing status and income bracket.
- 2). Sell a losing holding if you have one that you want to get rid of. This could be either a stock or a bond, but the sale of any security at a loss will reduce your taxable gain by the amount of the loss. Of course, it is not always wise to sell a holding simply to realize a loss. But you can always buy your holding back after 31 days if you want to keep it as part of your portfolio. A repurchase sooner than this will disallow the loss under the Wash Sale Rule.
- 3). Swap a losing holding for a like-kind security. If you are holding a losing tech stock, replace it with the stock of a competing company in the same field. Or you could swap a single holding for a mutual fund that invests in that sector. Exchange-traded funds can be good plays for this.
- 4). Buy your stock inside your IRA or Roth IRA if possible. This way you will not have to report the sale proceeds as income. Of course, you will have to report any distribution taken from a traditional IRA as ordinary income, regardless of the amount of gain (therefore, a Roth IRA is preferable).
- 5). Sell your stock before it reaches the high you think it's capable of if all else fails. If you think that your gain might be so large that it could land you in a higher tax bracket, consult your tax adviser to see what you should do. Remember that you will have to sell the stock before the end of the year if you want to do this.
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