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Will the Third Shoe Drop?

Currently, major U.S. stock market indexes are extremely volatile, in the negative column for 2015. In any case, it is likely that stock market values in late 2015 will still be much higher than they were in the dark days of early 2009.

Indeed, that is a key issue for year-end tax planning. The year 2000 was the last of Bill Clinton’s eight years as president, and the stock market crashed, ending the tech boom. The year 2008 was the last of George W. Bush’s eight years as president, and the stock market crashed, ending the real estate boom. The year 2016 will be the last of Barack Obama’s eight years as president—will the current stock market boom meet a similar fate?

No one knows, but it is a possibility to consider. Stocks have always risen and fallen, so we could see a modest down year in 2016 or even a painful plunge.

What does this have to do with year-end tax planning? If you are concerned about a stock market dip, one strategy is to reduce your exposure to equities. However, most of your stock market holdings may be trading at prices higher than what you paid, so selling could trigger capital gains tax. In addition, recent tax increases may raise the tax bill on profitable sales.

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