Getting Ready for Taxes

December is the time of the year that we all get ready for the tax man. Over the last 30 days, I have been looking for losses to take to offset the AMT and re-balancing the portfolio to be able to (hopefully) afford to pay those capital gains. This last correction in November caught me slightly off guard so I now don't plan to have the year I would have had if I had just gone to cash and taken the rest of the year off. As they say, traders are often wrong just slightly less than they are right.

Most of my losses have been taken so these last few days have been about trying not to take some additional gains on existing long positions that will dramactically increase my tax bill. Rarely does it make sense, in my opinion, to not sell a stock when the trade or investment thesis is over. When it is time to get out, get out regardless of the tax situation. However, in some cases when the stock is just drifting with the overall market and the fundamentals and the thesis for holding are still intact, then holding a Capital Gain into the next tax year may make sense.

For instance, my core position with PCP went long term at the end of November. My cost basis is $74.00 and the long term capital gain is very substantial. My feeling about the stock is that the run is not yet over, but the easy money has been made. I am thinking that $160 is reachable by earnings at the end of January, but I may not want to hold that long if events change.

During the November sell-off, I kept with my long position because I knew the stock would bounce back and I also was so close to locking in the long term capital gains rate. Now I have the ability to sell it without additional tax consequence, but I would also like to pay the taxes in 2008. Hopefully, the market will give me a reason to hold the stock another 30-45 days to postpone the tax man.