Tax Moves to Make Now / Smart year-end strategies, from harvesting bond losses to donating money.

Carrie Coolidge for Barron's writes:  Benjamin Franklin famously quipped that nothing is certain but death and taxes, but when it comes to your 2013 tax return, "higher taxes" are also pretty much certain for anyone in the top bracket. You've heard the bad news already: The tax rate on ordinary income that exceeds $400,000 for individuals and $450,000 for joint-filers will increase to 39.6% from 35% in 2012. For those same brackets, the tax rate will rise to 20% from 15% in 2012 on qualified stock dividends and long-term capital gains. 

Also, long-term capital gains will be charged an extra 3.8% surtax earmarked for Medicare.
Jumping from a 15% to a total 23.8% take essentially means that America's wealthiest are seeing a nearly 60% rise in long-term capital-gains taxes this year. A sobering fact that explains why Chris Zander, chief wealth advisory officer of Evercore Wealth Management in New York City, says that "taxpayers must think differently now than they did in prior years."
With that in mind, we asked four experts for some year-end ideas to bring up with your advisors:

Dan Schrauth, JPMorgan Private Bank

Giving to charity is one of the year's biggest plays. "Last year, clients were focused on gifting to utilize the available gift-tax exemption of $5 million for an individual and $10 million for a couple," says Schrauth, a wealth advisor at JPMorgan Private Bank who specializes in ultrahigh-net-worth clients. This year, with the higher taxes firmly in place, clients are poring over the nonprofit sector, trying to find new and effective ways to minimize their taxes with charitable donations.

Schrauth says that those who don't have charity fatigue after all they did last year, and who hold an appreciated asset, should consider gifting it to a donor-advised fund -- charitable vehicles, preapproved by the Internal Revenue Service. The biggest are run by Fidelity and Schwab. (See our related trust article, "A Donor-Advised Fund For You".) 

"If a client had a big taxable event during 2013," says Schrauth, who has offices in San Francisco and Palo Alto, "this would be the perfect year to offset that tax liability with a meaningful charitable donation to a donor-advised fund." Basically, you make a gift to the fund, which then passes that present to a charity. 

More clients are using such funds in lieu of private family foundations, he says, because they are easier to maintain and a person can contribute illiquid investments to them and get a charitable income-tax deduction based on the fair-market value of the assets. The kind of illiquid assets that get the higher fair-market-value tax deduction, in this scenario include hedge funds, private-equity funds, and interests in companies that aren't publicly traded.  

That's significant, says Schrauth, because "a similar contribution of an illiquid asset to a private foundation would allow the donor to get a deduction only equal to the asset's basis," generally defined as the donor's acquisition price, plus any related purchasing costs. 

The downside of a donor-advised fund is that you can't direct its investment strategy, as you can with a family foundation. A family foundation can invest in a cherry-picked hedge fund, which might not be possible through a donor-advised fund. In addition, individuals don't have total control over the gift made by a donor-advised fund. You can recommend a gift to your alma mater, but it's harder to target a specific research project at its medical school. 

There's also a nice play -- but one that is expiring this year -- if you have stock in a so-called qualified small business. The holding must have been acquired at original issuance and be a direct investment in a company that is structured as a C Corp; it must also be an active business and have gross assets that don't exceed $50 million at the time of issuance. 

"If the taxpayer holds the stock for a period of time and later sells it, under the most ideal scenario, he or she will pay no cap-gains taxes at the federal level on up to $10 million of gain," says Schrauth, who advises a lot of Silicon Valley investors.

This tax holiday is effective for qualified small-business stock acquired from Sept. 28, 2010, through Dec. 31, 2013, but the position must be held for at least five years to count. If the acquisition is made in 2014 or beyond, you will effectively pay a 14% tax on the first $10 million in gains on any of the qualifying investments, but that's still pretty good. There's also a rollover available. Holders for at least six months of the small-business stock that qualifies can defer an unlimited gain, if the proceeds of the sale are reinvested within 60 days in another qualified small-business stock.

"If you are an investor who is thinking of making an imminent investment in a qualified small-business stock, be sure to make it before the end of 2013 versus Jan. 1, 2014, or later," the advisor urges.

Allison Shipley, PwC

For those in the top tax brackets, municipals are often more attractive than taxable bonds because the latter get hit with an extra tax, notes Shipley, a Miami-based principal at the PwC accounting firm. Taxable bonds, but not munis, are subject to the Medicare-related 3.8% net investment income tax. This often helps make the muni-bond yield significantly higher than the after-tax yield of the taxable bond.

Shipley also advises a judicious culling of portfolio losses. If you hold bonds that have fallen in value, typically due to rising interest rates, consider selling them through a swap, harvesting losses that can lower your tax bill. "If you do not repurchase the same bond, but purchase a different bond with similar attributes, it will not be considered a wash sale," she says. 

A wash sale, you will recall, is the IRS-frowned-upon sale of a loss-making security to capture the tax-loss benefits, only to repurchase the same security at the lower price at some nearby date.

So the key to a successful maneuver for tax purposes is to buy a different bond, but with attributes and duration similar to those of the paper you are selling. "This way, you are not changing the basic nature of your overall investment portfolio, but it will reduce your net taxable capital gains," says Shipley. "Of course, if you are already in a net-loss position, this is no help for you."

Shipley is also advising clients to minutely pore over their business holdings, looking for active investments. The benefit? "While passive investments are subject to the net investment income tax, that is not the case for active investments," she points out. People should review what business activities they have, and whether those businesses might qualify as active businesses, in which case, they will not be subjected to the 3.8% tax.

The rules defining what are active and passive investments are complex, determined by several tests. If an individual spends more than 500 hours on a business activity in a given year, then he or she is deemed to materially participate in that business, and income from that business is considered active and not subject to the additional 3.8% tax. 

Divide your time among multiple ventures? Don't despair. There are ways you, too, can organize your affairs to lower your tax bill. Hours devoted to various businesses can be aggregated and collectively qualify as active investments, if the taxpayer is careful to pool similar businesses into an intellectually justifiable grouping. In certain circumstances this aggregating also can apply to those who invest a lot in real-estate deals, claims Shipley.
Of course, the IRS would not be the IRS if it did not also require a good paper trail, documenting why you are qualified to sidestep the Medicare surtax. "When you file your return in April, you will need to attach that grouping election with your tax return," says Shipley.

Chris Zander, Evercore Wealth Management

Families sitting on nongrantor trusts, in which the trust income is taxable, should get into gear before the end of the year, says Zander, chief wealth advisory officer at Evercore, a New York City firm. That's because any trust income above $11,950 gets hit with the highest federal rate of 39.6%, plus the 3.8% Medicare tax, and state income taxes are piled on top of that. And it's the same problem for capital gains inside the trust: Income over $11,950 will be taxed at 23.8% (20%, plus the 3.8% Medicare tax), again not including whatever morsels your state is going to grab.

What's a family to do? If the trustee has the power to distribute income to beneficiaries, this probably is the year to do so, provided the beneficiaries are at a lower tax rate. 

The tax profile of the trust and the beneficiary must be studied, to make sure the move makes sense, and it can get delicate if you start piling income on young family members before they can handle it. "On the nonfinancial side, be sure that the distribution to the beneficiary makes sense and saves taxes for the family," Zander comments.

Tracy Green, Wells Fargo Advisors

You may possibly, if the stars are aligned, reduce current taxes and potentially lessen future ones, says Green, a vice president and financial planning specialist with Wells Fargo's Tax and Financial Planning Team in St. Louis.

In particular, individuals who have flexibility on when they can receive certain income payments should consider timing them. Self-employed folks will, for example, want to look closely at their expected income and expenses in the coming years. Analyze, with your advisor, whether you should accelerate or defer certain income or expenses to control your taxable income in 2013–and possibly thereafter.

Let's assume the legally mandated minimum distributions from IRAs are increasing the tax liability of someone 70½ years of age or older. Green urges they check out the "qualified charitable distribution" benefit, which allows pensioners to make up to a $100,000 donation directly from their IRAs to charities of their choice. 

"The distribution still counts toward the required minimum distribution but will not be included in their adjusted gross income," says Green. Because the individual retirement account distributions are excluded from the septuagenarian's adjusted gross income, the move might even help keep his or her income below the $200,000 threshold when a 0.9% Medicare tax kicks in for single filers.

Too young to qualify? Consider reducing income by contributing the maximum possible to 401(k) plans, IRAs or SEP-IRAs ( a hybrid between a pension fund and an IRA.) Taxpayers who are 50 or older can also take advantage of catch-up contributions of up to $5,500 for several qualified retirement plans, including 401(k)s. 

The limit on annual contributions to an IRA has risen to $5,500, plus a $1,000 catch-up. But be smart. "When considering whether or not to defer income, you will need to determine whether the tax savings is more important than the benefits of receiving and enjoying a higher income this year," Green says.

There is, after all, nothing so dumb as a tax dodge that leads to a lesser quality of life.

Lower Your 2013 Tax Bill / New hidden tax hikes will hit many people this year. Here's how to lessen the blow.

Laura Saunders for the Wall St Journal writes:  You might think that tax planning would be easier this year. You could be wrong.   On New Year's Day, Congress finally agreed to settle many unresolved issues, raising taxes for most Americans. But only one change was simple: the end of a two-percentage-point cut in Social Security taxes, which is costing wage earners up to $2,274.   Most of 2013's other tax increases are less broad-based and more complicated. 

This year's code includes two new taxes, a new top income-tax rate, a new top rate on long-term capital gains and dividends, a new inflation adjustment to the alternative minimum tax, or AMT, and two revived tax-benefit "phaseouts." 

The upshot: For many people, it is more important than ever to estimate next April's tax bill before year-end, while it might still be possible to make adjustments. 

While the top 1% of taxpayers will bear much of the burden of this year's increases, experts say, the code also has new tax traps for the affluent, roughly defined as people with an adjusted gross income, or AGI, between $150,000 and $500,000.

"Especially for families in this range, it's hard to predict the tax rate without a sophisticated computer program," says Chris Hesse, a tax specialist at accounting firm CliftonLarsonAllen in Minneapolis.

The changes make it especially hard to guess the marginal tax rate—or how much a taxpayer will owe on added dollars of income. Important financial decisions often are based on such calculations.

An example: This year a married couple with two children, typical deductions, $230,000 in wages and $20,000 in net investment income will be in the 28% income-tax bracket. But if they have an additional $10,000 of wages, Mr. Hesse says, their actual rate on it will be 38.8%—more than 10 percentage points higher.

"This hidden rate comes from the interaction between the AMT and the new 3.8% net investment income tax," Mr. Hesse says. "Last year there was no 3.8% tax, so this anomaly wouldn't have existed."
This year's taxes become even more complex if the taxpayer has "passive" income or losses from investments, or a sharp spike in investment income, perhaps from the sale of a large asset. The family mentioned above, for example, could owe nearly 13 percentage points more than the nominal 15% rate on long-term gains, Mr. Hesse says.

To find out how you could be affected, consult a tax professional, such as a certified public accountant or an IRS Enrolled Agent, or use an online tool. Preparers such as TurboTax and H&R Block offer estimation tools, and the Tax Policy Center, a nonpartisan research group in Washington, offers an estimator that allows users to compare last year's tax with this year's at calculator2.taxpolicycenter.org.
Here are facts about the new pitfalls, plus moves for many to consider making before year-end.

What to Know

The Net Investment Income Tax. Passed by Congress in 2010 to help fund the health-care overhaul, the NIIT is an entirely new levy this year of 3.8% on the net investment income of most couples above a threshold of $250,000 of adjusted gross income, or AGI ($200,000 for single filers).

The tax applies to net capital gains, dividends, interest, rents and royalties, among other things, but only to the amount of such income that is above the threshold. So if a couple has AGI of $240,000 plus $20,000 of net realized gains (after deducting losses), $10,000 would be subject to the tax.

One point of confusion is how taxable retirement income such as pension or individual-retirement-account payouts interacts with the 3.8% tax. While this income isn't subject to the new levy, it can raise AGI so that other income is.

For example, a couple with $270,000 of AGI in Social Security, pension and IRA payouts wouldn't owe the 3.8% tax. But a couple with $240,000 of the same income, plus $30,000 of net gains and interest, would owe $760 on $20,000 of the investment income.

Because they are tax-free, qualified Roth IRA withdrawals aren't subject to the 3.8% tax and don't raise AGI. In addition, shareholders in closely held S corporations and partnerships won't owe the 3.8% tax on payouts if they "actively participate" in the business by meeting certain requirements.

Alan E. Weiner, a partner emeritus at the Baker Tilly accounting firm in New York, says many people still are unaware that deductions for state taxes and other expenses can reduce net investment income, even if they are limited elsewhere on the return, such as for the AMT.

Personal Exemption Phaseout. This benefit limit, also known as PEP, returns in 2013 after an absence of three years, with some differences. 

This year, each taxpayer can ordinarily deduct $3,900 for herself, her spouse and her dependents. Thanks to PEP, this benefit now begins to phase out at $300,000 of AGI for married couples and $250,000 for single filers. It is gone by about $422,500 for couples and $372,500 for singles, says Roberton Williams of the Tax Policy Center.

For taxpayers who aren't subject to the AMT, Mr. Hesse says, PEP can add an extra percentage point per taxpayer or dependent to the tax rates on income in the phaseout range. 

Such taxpayers often will be residents of states without an income tax, he adds, so a family of six in Texas or Florida could have a six-percentage-point higher rate on some income due to this provision. 

Pease limit on itemized deductions. This hidden increase, named after a former congressman from Ohio, also returns this year. 

The Pease limit disallows 3% of itemized deductions above the same income thresholds as PEP, up to a maximum disallowance of 80%. Common itemized deductions include those for mortgage interest, charitable contributions, medical expenses and state and local taxes.

In effect, the limit is an income-tax surcharge of about one percentage point for taxpayers in the 33% bracket and 1.2 percentage points for top-bracket taxpayers, the Tax Policy Center's Mr. Williams says.
Medicare payroll-tax increase. Taxpayers will owe an extra 0.9% of Medicare tax on wages above $250,000 of adjusted gross income ($200,000 for singles). This comes on top of the 2.9% Medicare tax for all workers, which is split evenly between employer and employee. 

Taxpayers should beware of a marriage penalty that can come with this tax, says Elizabeth Beerman, an associate at CliftonLarsonAllen. Two single people who live together and earn $200,000 and $100,000 of AGI, respectively, won't owe this extra payroll tax. But they will owe an extra $450 if they are married—and employers won't withhold it, because each is below the AGI threshold. "People are going to be surprised," Ms. Beerman says.

What to Do

Minimize adjusted gross income. Four of this year's tax increases have thresholds tied to AGI—the number at the bottom of the first page of the tax return, before deductions—rather than to taxable income, which is after deductions.

This means that tinkering with deductions won't help to avoid these increases. Instead, "we have to do everything possible to lower AGI," says Jonathan Horn, a CPA practicing in New York.

Among the moves that help: contributing to a tax-deductible IRA, 401(k) or defined-benefit retirement plan; realizing capital losses up to the amount of realized gains, plus $3,000; favoring tax-free Roth IRA income over taxable retirement payouts; having tax-free municipal-bond income; or deducting moving expenses and heath-savings-account contributions. 

It also helps to make charitable contributions with appreciated assets rather selling them and giving the cash.

Janet Hagy, a CPA practicing in Austin, Texas, says she is advising some clients to sell private-company stock in installments to spread income over several years to avoid triggering higher taxes.

In states with community-property laws, such as Texas and California, Ms. Hagy says, it could now make sense at times to use the "married, filing separately" status to minimize overall tax. "Couples with separate-property capital gains can sometimes avoid the 3.8% tax by filing separately," she says.

Do an AMT check. This year the alternative minimum tax might be lower than in the past for some.
The reason: The new higher rates and limits on exemptions are raising regular taxes for many affluent taxpayers, which in some cases lowers their AMT. That in turn can allow them to take deductions that are clipped or eliminated by the AMT, such as the one for state and local income taxes.

Given this change, David Lifson, a partner at Crowe Horwath in New York, recommends either accelerating or deferring state tax payments and other AMT-vulnerable items, depending on circumstances.
"The point is to make sure that every expense that can be deducted is deducted, because it may not always be able to be deducted," he says.

Take investment losses. Realized capital losses offset realized capital gains in taxable accounts, plus up to $3,000 of ordinary income a year. Taking losses can also lower adjusted gross income. 

But take care not to fall afoul of the "wash-sale" rules if you plan to buy back the losing asset. Use of the loss is postponed if a taxpayer acquires shares 30 days before or after selling losing shares of the same investment. 

The tax code counts shares bought within an IRA or through exercise of a stock option as purchases. 

Harvest investment gains. This year's tax changes retain the zero rate on long-term capital gains for married joint filers with up to $72,500 of taxable income ($36,250 for single filers). Such income doesn't include tax-free municipal-bond interest. 

This means that taxpayers in the bottom two brackets have the ability to "harvest" gains up to that amount, pay no tax, repurchase the asset and reset their cost basis higher. The wash-sale rules don't apply to gains, just losses.

It could work like this: A married taxpayer has 1,000 shares worth $95 each that he bought for $70 three years ago. If he can keep his total taxable income below $72,500, including the gain, he could sell the shares, buy them back immediately and pay no tax. But his "cost basis"—the starting point for measuring future capital-gains tax—would now be $95 instead of $70 a share.

That could save future taxes if he needs to sell the stock before his death.
Make charitable contributions. Donations to hundreds of thousands of qualified charities are tax-deductible if you have a letter in hand specifying the deductible amount before you file next year. 

Think twice before writing a check, however. Often a better move is to give appreciated assets such as stock shares. Within certain broad limits, any capital gain isn't taxable and the full value of the gift is deductible.

Donors who are 70½ and older can use the so-called IRA charitable rollover for 2013. It allows account owners to contribute up to $100,000 of a required payout directly to qualified charities such as churches, schools or other groups.

There is no tax deduction for such gifts, but neither is there income. That, in turn, helps lower AGI in a way that can reduce certain Medicare premiums or taxes on Social Security payments.

Maximize medical and miscellaneous deductions. Both are subject to such high hurdles that taxpayers often have a hard time claiming them unless they strategize, say by bunching expenses from more than one year to claim them at once.

Most taxpayers can deduct only unreimbursed medical expenses above 10% of their adjusted gross income, although for taxpayers age 65 and older (and their spouses) the hurdle is 7.5% of AGI, if they aren't subject to the AMT. This exception applies through 2016.

However, the list of qualified expenses is long, including contact-lens solution, a wig after chemotherapy and acupuncture. For a full list, see IRS Publication 502.

Miscellaneous expenses are deductible only above 2% of a taxpayer's AGI. Typical write-offs are for unreimbursed work-related expenses and certain investment expenses. 

Use an expiring tax break. This is the last year to take advantage of more than a half-dozen popular breaks, unless Congress extends them next year.

They include the IRA charitable rollover for people 70½ and older (see above); the state sales-tax deduction in lieu of a state income-tax deduction; the generous Section 179 expenses deduction available to small businesses claimed on individual returns; and the $4,000 tuition and fees deduction.

Make annual gifts. The federal estate-and-gift-tax lifetime exemption is now $5.25 million per individual, and it will rise to $5.34 million next year.

But 19 states and the District of Columbia still have estate and inheritance taxes, many of them with exemptions far lower than Uncle Sam's.

All, however, follow the federal practice of allowing givers to make tax-free transfers of up to $14,000 per recipient a year. For example, a married couple with two married children and five grandchildren could make 18 separate gifts of $14,000, for a total transfer of $252,000.

Givers can transfer assets such as stock, or even partial interests in assets like real estate or a business, instead of cash. In that case, the giver's tax cost for the asset carries over to the recipient.

Jay Rivlin, a partner at law firm McDermott Will & Emery in New York, often advises people who are making gifts of nontraded assets that require an appraisal, such as real estate or partnership shares, to make two gifts—one just before and one just after year-end. "One appraisal can be used for two sets of gifts," he says.
 

A Surprisingly Large Year-end Stock Run? Tax Advice Could Cause It

John S Tobey for Forbes writes:  Now is the time investment advisories address tax strategies. This year, an unusual confluence of factors is producing a rare, single-decision strategy that applies to most investors: Hold.

As happened in 1991, this widespread action could diminish supply, leading to a year-end run-up – possibly large. What makes this year special are these five simultaneous drivers:

1. Stock gains occurred primarily in 2013, starting from the November’s worrisome lows, then getting their real kick off in January. This concentration within 2013 means most of the purchases made during this rise are short-term (i.e., less than a year) or are only just becoming long-term. The large tax difference between short- and long-term gains is a strong incentive to wait before recognizing a gain.
2. Gains are spread broadly throughout the entire U.S. stock market. Within the S&P 500 Stock Index, over half the stocks are up more than 30%, and fully one-fifth gained 50% or more. Therefore, many (most) portfolios are filled with large, unrealized gains.
3. Conversely, short-term losses to offset any realized gains are hard to come by. Only 8% of the S&P 500 stocks are down this year, and less than 2% are down 10% or more.
4. Beyond the long-term/short-term status, there is the tax year effect. Sell within the next month and the gains are 2013 taxable. Wait a month and the tax effect is postponed 12 months.
5. Finally, the amount of short-term gains has been affected by investors’ sizeable shift into stocks this year. Swelling this money move is the market’s steady rise that has built confidence and heightened the desire to get in on the gains.

2013 has ingredients for an end-of-year Wow!
In my years of investing experience since 1964, there have been a variety of year-end tax strategies. Most had a muted market effect because stocks rarely move concertedly and in unison for an entire year. The past few years show significant volatility within each, thereby producing no obvious tax strategy applicable to all. However, there have been a few years where conditions aligned. This year is one of those times. For a historical precedent, we can examine 1991.
1991 – A similar time
To understand the importance of 1991 as a comparison, we need to start four years prior.

• In 1987 the stock market produced excellent gains, with growth stocks doing especially well. Then came the sharp October 1987 crash that wiped out most of the earlier gains. Because of the worldwide seriousness of the drop (e.g., the Hong Kong market closed for five days after falling 45%), investor confidence was shaken.
• In 1988 stocks rose (S&P 500 = +12%; Nasdaq = +15%), helping rebuild investor confidence
• In 1989 the S&L crisis was top news and banks were hurt, but the market performed well (S&P 500 = +27%; Nasdaq = +19%)
• In 1990 two hits occurred: the depths of the S&L/banking problems were hit plus the late 1990-early 1991 recession began. As a result stocks fell (S&P = −6%; Nasdaq = −17%). Note also the large difference in two-year (1989-1990) returns between the better performing S&P 500 and the lagging Nasdaq.
• Then, in 1991, with the S&L crisis behind and the general outlook turning positive, good things happened. Investor confidence increased, stocks rose and growth caught fire (S&P 500 = 26+%; Nasdaq = 56+%). The market’s rise fit almost perfectly within the year, kicking off in early January 1991 and peaking in January 1992. This pattern combined with the investor confidence backdrop is why I believe 1991 is a good case study for 2013.

Note: There is one difference that is visible in the graphs below: The Nasdaq’s performance relative to the S&P 500 and the DJIA. In those years, Nasdaq was working to build its reputation and broaden its listings of larger companies that more typically were on the NYSE. Now, Nasdaq has achieved that objective, so the difference in returns is less pronounced. Nevertheless, the Nasdaq, with its large complement of technology and newer firms, tends to have more of a growth characteristic than the other two measures.

The 1991 pattern in graphs
The first graph shows the daily market indexes from the beginning of 1991 to the end of 1992. Note the final burst at the end of the 1991. This is the pattern that I believe could emerge in 2013.

(Stock chart courtesy of StockCharts.com)
The next graph highlights Microsoft, one of the growth darlings in 1991. Up 100+% by mid-December, it added another 50% by mid-January. This example shows the potential power of deferred selling.

(Stock chart courtesy of StockCharts.com)
Now turn to 2013
The first graph shows the near perfect fit of the latest market move into the year.


(Stock chart courtesy of StockCharts.com)

Although the market’s bottom was in mid-November 2012, the real kickoff didn’t happen until the 2012 tax loss selling was over and the market opened up on January 2. Caterpillar’s graph (right) provides an example of that selling period and its effect.

The next graph (below) shows the four top performers this year in the S&P 500: Netflix, Micron Technology, Best Buy and Delta Airlines. These stocks, and the many other high risers this year, are candidates for a year-end bonus run-up like Microsoft’s in 1991.

(Stock chart courtesy of StockCharts.com)
Note: The 2013 tax advice effect is an underlying market push, particularly for the better performing stocks. However, no stock market forecast is without risk. Any stock is susceptible to a fundamental hit, even top performers — e.g., Tesla’s and Best Buy’s recent reversals. Then there is market risk. There is the always the possibility of a large event or mega-fear – e.g., the unlikely but possible escalation of China-U.S. military activity.

The bottom line
The 2013 stock market rise has an unusual combination of factors that could produce an upward push at year-end — perhaps surprisingly large. Widespread gains, produced since late 2012/early 2013 likely mean equally large unrealized gains, many of which aren’t long-term yet. The smart tax tactic is to postpone selling until a holding is long-term or, if already long-term, until the new tax year comes – only one month away.
Even for investors not concerned about the tax effects (e.g., in IRA accounts), waiting through year-end could produce larger gains. On the flip side, 2014 could see some delayed selling occur, as happened in 1992.

One more consideration: Year-end “window dressing” by investment managers
Window dressing is the description of a presumed investment managers’ activity: The buying and selling at quarter-end (especially June and December) in order to have published holding reports that include “winners” and exclude “losers.” Although, in my 30 years of working with managers, I never witnessed this activity, it has been a traditional Wall Street assumption. Therefore, the belief in it, alone, could help cause the effect, thereby producing an added boost to already well-performing stocks.

Does timing of stock sale affect taxes?

Matt Krantz for USA Today writes: Question : Is it worth holding off selling a stock to get a lower tax rate? 

Answer: Frequent traders like to say it's never wise to let Uncle Sam make your investment decisions for you. But in reality, tax considerations are enormous and shouldn't be ignored.

When you sell a winning stock that you've own for a year or less, you have quite a bill to pay in many cases. These so-called short-term capital gains are taxed at your ordinary income tax bracket, which ranges from 10% to 35%. That's a hefty bill for most investors.

By holding onto a winning stock for more than a year, when you sell, your gain likely qualifies for the long-term capital gains rate. The long-term capital gains rate is a bargain next to most people's short-term capital gains rates. Investors in the 10% and 15% ordinary income tax rates pay 0% capital gains taxes on their long-term gains. And other investors in the 25% or higher ordinary income tax rates are access long-term capital gains rates of 15%.

Given the massive amount of difference between the long-term and the short-term capital gains rates, you can see that unless you think a stock is going to fall by a large amount, and you risk suffering a hit by holding, you're most often best off holding on for a couple of extra days to qualify for the lower tax rate.