I have a few clients who get a little crazy when it comes to the subject of income taxes. The idea of having to pay some tax just makes them angry.
But I think we all forget sometimes that if you’re paying tax you’re making money. And that’s always preferable to the alternative. Here are a few of rules about taxes to keep in mind when you’re trying to make an investment decision.
- Don’t sell a good stock just to generate a tax loss.
- Don’t keep a bad stock just because you’ll have to pay some tax.
- Once you’ve followed steps 1 and 2, then look at reducing your taxes as much as possible.
- Remember you can’t ‘lose everything’ in a stock (outside of an IRA) because you still get a tax loss.
In short, don’t make an investment decision, just because of taxes. Take advantage of tax savings where you can, but don’t worry about it too much.