"Fiscal Cliff": To sell or not to sell stocks
With the so-called "fiscal cliff" looming, what should you do if you own stock? Should you sell it off to avoid a big tax increase? Many financial planners are actually urging people to do nothing -- for now.
"It's this fear that there's going to be huge tax hikes and that there's going to be government spending that's going to be getting cut," said Laurie Siebert with Valley National Financial Advisors in Bethlehem.
Investors are starting to sell off stocks to avoid the tax hikes that could come -- if Congress can't agree on a deficit reduction plan by year's end. If nothing happens, workers' payroll taxes would go up two percent. Plus, certain tax breaks for businesses would end, as well as President Bush's 2001 tax cuts for all of us.
Investors would also get hit with much higher taxes on "capital gains," the money they make off stocks and dividends. That's led to a very volatile stock market.
"It's like a mob mentality," said Siebert. "Everyone else is selling, the news is saying to sell, to take your gains -- to get the lower rates."
But for now, Siebert and many financial planners are urging most clients to do nothing. Many believe capital gains taxes will only go up for the wealthy: individuals making more than $200,000 a year, or couples making more than $250,000.
"I believe that there's more hype in the media, sorry to say, about the fiscal cliff," said Siebert.
If you insist on selling, some brokers are buying the stock right back to reset clients' cost-basis, the amount your capital gains tax is based on.
Instead of selling off your winners, some planners suggest getting rid of your losing stocks instead. That way, your losses could offset any tax hike that's coming.
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