Just about everyone is crying about their losses on their investments, which saw massive reductions in value last year. Not all news about investment losses is bad, however. Those losses can play a key role in reducing your tax liability.
Capital losses on stock, bonds, and other investments can be used to offset capital gains that you may have had on other investments. In addition to that, up to $3,000 of your losses can be deducted from your income for the year. So while you may have lost a good chunk of money in the stock market, at least a portion of that can be recovered through tax savings.
You don't want to sell depreciated stocks only for tax benefits. If you think you've got a good investment that will perform well long-term, you're probably better off hanging onto it. But if you're planning on selling soon anyway, take into account the tax considerations, which may make the case for selling even more compelling.
Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.