As of this writing, major U.S. stock market indexes are extremely volatile. They’re in the negative column for 2015, but that could change by the time this issue goes to press. In any case, it’s likely that stock market values in late 2015 will still be much higher than they were in the dark days of early 2009.
Indeed, that’s a key issue for year-end tax planning. The year 2000 was the last of Bill Clinton’s eight years as President, and the stock market crashed, ending the tech boom. The year 2008 was the last of George W. Bush’s eight years as President, and the stock market crashed, ending the real estate boom. The year 2016 will be the last of Barack Obama’s eight years as President—will the current stock market boom meet a similar fate?
No one knows, but it’s a possibility to consider. Stocks have always risen and fallen, so we could see a modest down year in 2016 or even a painful plunge.
What does this have to do with year-end tax planning? If you’re concerned about a stock market dip, one strategy is to reduce your exposure to equities. However, most of your stock market holdings may be trading at prices higher than what you paid, so selling could trigger capital gains tax. What’s more, recent tax increases may raise the tax bill on proﬁtable sales.
In this issue, we’ll present some ideas for reducing your exposure to a potential stock market slide without increasing your tax bill. Of course, that shouldn’t be your only focus in year-end tax planning—we’ll have tax-saving tactics in other areas—but if you have signiﬁcant holdings of stocks or stock funds, you may want to consider some of these suggested strategies.