Using Options to Avoid the Tax-Loss Wash

After a three-year absence, the stock market will once again be welcomed to the Thanksgiving table and rejoin the list of things for which we are grateful. In the aftermath of the feast, many people who are sitting on healthy gains will have time to ponder profit-taking and protection plans, and the possibility of selling off a few losers for tax-loss purposes.

Many investors, however, are rightfully reluctant to sell holdings simply for tax purposes. Of course, if you think the stock is a dog and has little chance of recovery, then you should by all means dump it. But if you still believe in a company's long-term prospects, you may want to retain ownership.

(Before we go any further, let me remind you that you should always consult a qualified tax expert before engaging in any transactions. Tax laws, especially those related to investing, are notoriously complex and constantly changing -- each situation is handled differently. I'm not a tax expert, but one thing I can state without equivocation is this: Don't try to use options as a means to avoid taxes. If you owe taxes, you will pay -- one way or another. ...