Measuring the Value of the Best Loss Sales Strategy in Equity Investment

• In Event: Taxes 2

Abstract

There was a huge stock market downturn and upturn during the period between 2007 and 2012. This paper attempts to find out the best strategy to take advantage of this big swing. It points out that short-term capital losses can save income by as much as 35%, while long-term capital losses by as low as 15%. On the contrary, short-term capital gains entail income tax liability at a maximum rate of 35%; whereas, long-term capital gains at a tax rate of only 15%. This paper shows how to coordinate and maneuver among these variables in minimizing the tax liability and thus maximizing the investment value. This paper further investigates what could have happened to investment value had the best strategy not been adopted. The difference in investment value between two different strategies measures the value of the best loss sales strategy. It can also be determined by comparing net profit or loss between two different strategies. It is found to be 30.43% of the initial cost of investment. This paper also formulates a model in determining the final investment value under each strategy.

Author

• James Yang, Montclair State University