Nonetheless, as they say: "death and taxes"... the only certainties in life!
This is where we cue our long standing response to the concerns about capital gains taxes: "Write your congressman"! And while we definitely think each client subjected to such taxation should regularly complain to their representatives in Congress about how poorly they appropriate our money, we understand that seems to fall on deaf ears these days; especially in California!
All that aside, we emphasize that we absolutely MUST consider the investment merits of our decisions first and foremost, and relegate tax-related decisions to second place.
We use tactics throughout the years to minimize capital gains taxes by harvesting losses when and where we deem it appropriate, from an investment standpoint. Most of the time that involves buying more of a loss position, waiting 31 days (so as to avoid wash sale rules) and then selling the original shares that were purchased at higher prices and carry losses. Not surprisingly, oftentimes that results in losses being completely wiped out (buying low...!), but who's complaining if that is the outcome? It is an effective tactic for realizing losses while still maintaining a position in a company that we believe to be temporarily impaired.
Additionally, when considering tax-loss harvesting, we almost never wait until the end of the year to practice such maneuvers. It is then that most novices are taking tax losses, and we would much rather be in the position of buying those shares from people that are making poor investment decisions to save on taxes. In our experience, those folks are usually falling into the "penny-wise and pound-foolish" trap.
One of the concerns that investors have is that they often don't know where they stand throughout the year with respect to realized capital gains and can end up in tax penalty situations for lack of withholding in the tax year. Here, we note that every custodian we work with provides that information, generally on the front page of the statements, each and every month of the year. We urge clients who have that concern that they monitor those monthly statements, or even have their tax advisers do so on a periodic basis throughout the year. However, it is important to note that those realized gains/losses can change rapidly throughout the course of the year as conditions on the investment side of the equation (the most important side) change.
We have been most fortunate to have the types of above average returns for our investors that have created such problems as capital gains tax liabilities. While we wish the government were more frugal and less willing to confiscate our money that we first earned, and pad taxes, and the risked, made money, and paid taxes, we are not holding our breath. Long-time readers of our writings know that we believe the economy would be much stronger if the government didn't spend money at the frenetic pace that it does, but we get by in spite of such profligacy, and will continue to do so!
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