Here’s the basic strategy:

Avoid the high taxes (up to 40.8 percent) on short-term capital gains and ordinary income.

Lower the taxes to zero—or if you can’t do that, then lower them to 23.8 percent or less by making the profits subject to long-term capital gains.

Think of this: you are paying taxes at a 71.4 percent higher rate when you pay at 40.8 percent rather than the tax-favored 23.8 percent.

And if you can avoid that higher rate with some easy adjustments in your stock portfolio, doesn’t it make sense to do that now?

Big Picture

Here are the five basic tax rules you need to know to find the tax savings you desire in your stock portfolio:

1. On your short-term capital gains and ordinary income, you pay federal taxes at rates of up to 40.8 percent. The 40.8 percent comes from the top income tax rate of 37 percent plus the 3.8 percent Affordable Care Act tax on net investment income.

2. You pay taxes on your long-term capital gains at rates from zero up to 23.8 percent (20 percent for capital gains plus 3.8 percent on investment income), depending on your income level.

3. You pay taxes on your stock dividends at rates from zero to 23.8 percent, depending on your income level.

4. If your personal capital losses exceed your personal capital gains, the tax code limits your capital loss deductions to $3,000 and allows you to carry over losses in excess of the $3,000 to future years until realized.

5. You first offset long-term gains and losses before you offset short-term gains and losses.

6. Donate appreciated stock to charity.

7. Do not donate stock that would produce a tax loss.

Now that you have the basics, here are seven possible tax planning strategies.

Strategy 1

Examine your portfolio for stocks that you want to unload, and make sales where you offset short-term gains subject to a high tax rate such as 40.8 percent with long-term losses (up to 23.8 percent).

In other words, make the high taxes disappear by offsetting them with low-taxed losses, and pocket the difference.

Stay tuned for more strategies!