When you buy stocks, you should set a "stop-loss" point. If you by a stock for $80 a share, for example, be prepared to sell that stock if the price drops below $70. Advantages:
* The losses you take can offset taxable gains, holding down your tax bill.
* Net capital losses up to $3,000 can be deducted against ordinary income each year.
* Losses in excess of $3,000 a year can be carried forward to future years. These loss carry-forwards can offset the tax you’ll owe on any capital gains you take.
Although some investors take stock market losses near year-end, this strategy may force you to sell when other investors are selling so you’ll wind up with even lower prices. Instead, you should take capital losses throughout the year, if your stocks lose value.
Besides the tax advantages, taking losses sooner rather than later can help you to limit those losses before they become larger.