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).