As the end of the year approaches, many taxpayers look for ways to cut their tax liability. One smart way that taxpayers can reduce their taxable income is by taking tax losses. But the last thing you want to do is sell a stock only to see it go up right after you sell.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, talks about a way that you can harvest tax losses without missing out on a future move in the stock market. Dan notes that although wash-sale rules prevent you from buying back the same stock right after you sell it, you are allowed to use similar exchange-traded funds that cover the same general sector or segment of the market. Dan specifically talks about one strategy that involves using SPDR Dow Jones Industrials (NYSEMKT: DIA ) as a proxy to help investors take losses on Caterpillar (NYSE: CAT ) or IBM (NYSE: IBM ) , and another strategy involving Apple (NASDAQ: AAPL ) and the PowerShares QQQ ETF (NASDAQ: QQQ ) .
Get smart about your taxes
Making the most of your tax losses is just one way you can cut your overall tax liability. In our brand-new special report "How You Can Fight Back Against Higher Taxes," The Motley Fool's tax experts run through what to watch out for in doing your tax planning this year. With its concrete advice on how to cut taxes for decades to come, you won't want to miss out. Click here to get your copy today -- it's absolutely free.