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November 19, 2012

Do you know the future?

If you do, then you know what tax and financial decisions to make today.

For the rest of us, we need to consider our alternatives.  Making a tax decision based only on possible future tax changes in the future could be a mistake.

Should you sell appreciated stocks you have held for more than 12 months in 2012 because future tax rates may be higher?  Yes if the stocks are no longer appropriate for your portfolio.

Reasons why a stock may no long be appropriate include: lack of performance, lower expectations, and they are too large in relation to the total portfolio.  The possibility of future higher tax rates may encourage an investor to do what is best, regardless of tax rates.  This would also eliminate the immediate impact relating to congressional action relating to the fiscal cliff.

If you have stock options that expire soon, you could exercise them in 2012 and/or sell them in 2012.  This would eliminate any negative impact of changes in tax rates or problems in avoiding the fiscal cliff.

Making sizable gifts in 2012 may be appropriate.  If gifting is an applicable strategy, making the gifts in 2012 eliminate the uncertainty of changes in the tax law or the impact of issues relating to the fiscal cliff.  Future gifts can be reduced if based on the gifts in 2012.

The point is, you need to keep in mind where you are, where you are going and allow flexibility in case thing do not go as planned.
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