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Taxes and market timing
Old 11-11-2007, 11:22 PM   #1
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Taxes and market timing

I've been very disappointed with my mutual fund returns over past years so this year I started moving in and out and I actually came out very well (but only the limit so as not to accure penalties for MT). I got out before the big fall the last couple wks and hope to get back in soon. The problem is paying the taxes on the gains. I can only use the standard deductions. Most everything I have is paid for. I have to find a way to get my taxes down. This is prompted by my recieving a notice last wk that I have to ammend my taxes. My mistake and another 3-4K I have to pay. With the volitility in the markets today, I really believe you have to be a little more proactive than your fund managers are. Anybody have any advice? Would it be worthwhile to talk to a CPA? Thank you Cletis
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Old 11-11-2007, 11:33 PM   #2
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Continue market timing. Up to $3K per year in losses can be deducted.

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Old 11-12-2007, 08:38 AM   #3
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watch out for wash sales. A distribution can affect this also.

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Old 11-12-2007, 08:56 AM   #4
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I'm not sure I understand the issue, perhaps you need to state it more clearly.

You made money on the sale, so you will have to pay taxes. Can't you just hold out some of the gains you made to pay taxes?

Regarding getting taxes down, my advice is to look at the whole picture of maximizing what you make minus the taxes you must pay. About all I worry about tax-wise is to invest in tax-exampt bond funds over taxable, because it makes sense for my tax bracket, and to try to hold onto stocks and mutual funds long enough to sell for LT cap gains rather than ST, unless it is a stock that I think will drop a lot before I get to a year. Mostly I just buy and hold, to defer paying taxes. If I make a good profit on an investment, taxes are just a reduction on the gains, but it's better than no gain at all.

If you made a mistake on taxes last year and owe a lot, yeah, maybe you ought to hire a CPA to help out. I've heard of people hiring a CPA to help them make whatever they want to do be more tax efficient, but I don't know what they would do if you're primarily in the stock market.

Good job on getting out for the last market drop. Most people here, myself included, aren't fans of market timing and will probably think you can't do this consistently. If you get out of the market too early you will miss a run-up, and then you're essentially taking a loss by missing out on those gains until you get back in. I agree the market is quite volitaile, but not predictably so. I hear a lot of stories about successes in market timing, but I also hear a lot of stories about people winning big at the tables in Vegas, and rarely hear about the losses they take other times. Make sure you are really honest with yourself that you are really beating the market by getting in and out, and not just being swayed by a few successes.
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Old 11-13-2007, 12:27 AM   #5
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Quote:
Originally Posted by cletis View Post
I've been very disappointed with my mutual fund returns over past years so this year I started moving in and out and I actually came out very well (but only the limit so as not to accure penalties for MT). I got out before the big fall the last couple wks and hope to get back in soon. The problem is paying the taxes on the gains. I can only use the standard deductions. Most everything I have is paid for. I have to find a way to get my taxes down. This is prompted by my recieving a notice last wk that I have to ammend my taxes. My mistake and another 3-4K I have to pay. With the volitility in the markets today, I really believe you have to be a little more proactive than your fund managers are. Anybody have any advice? Would it be worthwhile to talk to a CPA? Thank you Cletis
You say "the problem is paying taxes on the gains." The don't be a short term trader if taxes are going to be the tail that wags the dog. Hold for the longterm and you get favorable captial gains tax rates. Plus you cut your trading expenses. And you way cut your tax return preparation expenses if you hire that out, or you save lots of your own time if you do it yourself.
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