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Tax-Smart Investment Planning Before Year-End Can Make a Difference

Recent Market Activity, Losses Should Prompt Investors to Look at Tax Opportunity in their Portfolios, say Tax Experts at Wolters Kluwer Financial Services.

With just one month to go before the new year, investors still have time to make tax-smart trading decisions that could help them in the upcoming tax season, according to the experts at GainsKeeper® and Capital Changes, both parts of Wolters Kluwer Financial Services.

While year-end is typically a time when individuals look at ways to improve their tax position, the recent market turmoil may have even more investors searching for strategies that can help soften the hits they have taken in the market this year. Stevie Conlon, tax director at GainsKeeper, and Richard Ryndak, manager of international content development at Capital Changes, suggest the following:

- Consider Selling Some of Your Losses - Many investors should consider the benefits of tax loss harvesting. For investors who have capital gains and have also incurred losses in other areas of their portfolio, now is the perfect time to consider selling their securities at a loss to offset the capital gains tax liability.

“It is likely your portfolio has had a tough year,” said Conlon. “Many investors are looking at some stocks that have lost a lot of value. Realizing losses to minimize capital gains can really help improve portfolio performance.”

Ryndak notes that if you own stock in a company that has filed for bankruptcy, you may want to sell the stock and take the loss this year, rather than waiting until the stock is deemed worthless.

“In order to take a worthless stock deduction, you must show that the stock has become completely worthless, meaning it has no present value and no potential value,” said Ryndak. “This is a question of fact, and many bankrupt companies trade for fractions of a penny for years. It may not always be clear in which tax year the stock becomes completely worthless. Selling the stock establishes the loss with certainty.”

- Watch for Wash Sales – Under the Wash Sale Rule, investors who sell stock at a loss, but then buy a substantially identical security within 30 days before or after the sale, are not allowed to recognize that loss for tax purposes. That’s because that 61-day time frame is what the IRS calls the wash sale period.

“Not only can the Wash Sale Rule prevent you from taking a loss, but failing to account for wash sales can result in costly errors in cost basis calculations for both the stock sold at a loss and the security that triggered the wash sale,” said Conlon. “Investors should be aware of wash sales and their consequences in order to manage their portfolio in the most tax efficient manner. The Wash Sale Rule can trap investors that sell stock in a down market and then quickly repurchase shares when the market turns up. This could be a major risk for many given recent market volatility.”

- Account for Corporate Actions - With all of the market activity during the past year, investors should investigate whether any corporate actions, such as mergers, acquisitions, splits and spin-offs, have affected the securities they own.

“In the past 12 months, Capital Changes has reported more than 10,000 corporate actions affecting stocks, which means that many investors will be affected at some point,” said Ryndak. “In order to fully understand your tax position, and complete your Schedule D, you need to know how corporate actions have affected your portfolio.”

Ryndak says investors should pay particular attention to stock-for-stock mergers that are taxable, meaning gain or loss must be recognized even though little or no cash has changed hands. In such cases, the stock received in the merger has a new holding period and a basis equal to its fair market value at the time of receipt. Apart from having to report the gain or loss on the old stock, investors must decide whether to hold or sell the new stock. If there is a potential for short-term loss, it might be useful to offset short-term gains that would otherwise be taxed at ordinary income rates.

Ryndak and Conlon suggest investors consult with their tax or financial advisor for guidance on optimal tax strategies. They can also turn to software that automatically adjusts for wash sales and corporate actions, and helps identify the most efficient tax lots to sell.

“With professional guidance and technology, investors can better determine what works best for their individual portfolio, avoid tedious error-prone manual calculations and ultimately maximize after-tax returns,” said Conlon.

About Capital Changes
Capital Changes provides a comprehensive source for current corporate action reporting. In addition to detailed tax information and analysis, it provides timely and concise summaries—updated daily—of spin-offs, mergers, exchange offers, reorganizations, bankruptcies, stock dividends, splits and other corporate actions affecting publicly traded securities of both U.S. and foreign companies. With over 100 years of data coverage, leading financial services firms rely on Capital Changes for its basis adjustments and its legacy of unparalleled legal, tax and accounting analysis of corporate actions. For more information, visit

About GainsKeeper
GainsKeeper®, a part of Wolters Kluwer Financial Services, provides automated tax-based financial tools and services to the investment community. GainsKeeper’s solutions enable financial institutions to offer sophisticated tax lot accounting services to their customers, ranging from back-office outsourcing to fully integrated, web-based tools and services utilized by the brokerage, mutual fund, and fund administration industries. In addition, GainsKeeper offers products designed specifically for individual investors and accountants to meet their complex tax reporting and portfolio analysis needs. For more information, visit

About Wolters Kluwer Financial Services
Wolters Kluwer Financial Services provides best-in-class compliance, content, and technology solutions and services that help financial organizations manage risk and improve efficiency and effectiveness across their enterprise. The organization’s prominent brands include Bankers Systems, VMP® Mortgage Solutions, PCi, GulfPak, Desert Document Services®, AppOne®, GainsKeeper®, Capital Changes, NILS and AuthenticWeb™.

Wolters Kluwer Financial Services’ solutions include integrated and stand-alone compliance and workflow tools, documentation, analytics, authoritative information and professional services. Customers include banks, credit unions, mortgage lenders and securities and insurance organizations of all sizes throughout the United States. For more information on Wolters Kluwer Financial Services, visit

Wolters Kluwer is a leading global information services and publishing company. The company provides products and services globally for professionals in the health, tax, accounting, corporate, financial services, legal and regulatory sectors. Wolters Kluwer has annual revenues (2007) of €3.4 billion ($4.8 billion), maintains operations in over 33 countries across Europe, North America, and Asia Pacific and employs approximately 19,500 people worldwide. Wolters Kluwer is headquartered in Amsterdam, the Netherlands. Visit for information about our market positions, customers, brands and organization.