A New Year - Same Old Tax Tricks

As the year closes, many of us take time to reflect our thoughts. In fact, often this time of the years brings more thought than action, especially with the nostalgia of years past and the intention of our newest New Year's resolutions.

Within the stock market, however, some people are very active.

This might be true, anyway, but I'm referring to one specific thing.

TAXES.

I never have any proof, but it seems to me that the price of many stocks are mildly to strongly affected by taxes.

I see four (4) main things playing this time of year.

Tax Write-offs: If I have a big loss, I might sell my stock to recapture some of that loss by deducting that loss from my income. Even though it's a loss, some of that money lands in my pocket sooner rather than later.

Expected Behavior: Stock prices will drop in December. They might rise again in February.

Example: BP is a perfect example. The stock tanked this year, but the company clearly is rebounding just fine from it. However, many people could have sold the stock in December to get a write-off, and they could repurchase it as early as February--maybe January if they sold early enough in December.

Tax Payment Deferral: If I have a big gain, I might sell my stocks at the beginning of the year. Yes, I'll have to pay taxes but not for nearly a year-and-a-half later.

Expected Behavior: Stock prices will drop in January.

Example: Ford (F) is a good example. The stock made many people money this year. Of those people who want to "cash out," they are wise to wait until shortly after the year. If they sell in December, they'll have to pay the taxes on their gains before April 15, 2011. If they wait a month, that deadline pushes to 2012--a BIG difference for waiting just a few days.

Business Tax Laws: Knowing tax laws is not my specialty, but it only makes sense to buy or sell stock in a company whose way of doing business might affect its ability to make a profit.

Personal Tax Laws: I would also be influenced by an upcoming law change, say a change in capital gains tax rates.

If I might do these things, what are the chances that I'm the only one.

I'm convinced that these things affect the market, because they should.

Had the tax breaks for the upper class been cut after this year, that would have affected a TON of stock prices.

There is talk about returning the capital gains tax rate from the current 10% to its previous 15%. At first, a 5% difference might not seem like much, but do you realize that means someone would pay 50% more in taxes?

That would affect MY decision whether I should sell today or tomorrow, and it would a lot of other people's too.

As we get ready to introduce a new year, make sure to take time to think. It's a great time for that.

Also, be sure to leave time to take action--if needed.