Harvest stock gains to lock in tax rates Normally at year end, advisers recommend selling losing investments to harvest tax losses that can be used to offset capital gains and - if losses exceed gains - up to $3,000 a year in ordinary income. [...] singles with more than $200,000 and joint filers with more than $250,000 in adjusted gross income will pay a 3.8 percent Medicare tax on their investment income, but only up to the difference between their AGI and those income limits. If the Bush-era tax cuts expire at year end as scheduled, the top rate on capital gains will rise to 20 percent and dividends will be taxed as ordinary income, at rates up to 39.6 percent. If you are a wealthy investor and planning to unload a position anyway within four years - to diversify a concentrated investment or rebalance a portfolio - it's a good idea to sell now to lock in today's lower rates, says Patrick Geddes, chief investment officer of Aperio Group. If an employee is earning more than $200,000/single or $250,000/married - or if the option exercise pushes him above this limit - any amount over the limit will also be subject to the extra 0.9 percent Medicare tax on earned income next year. If the option is exercised this year, the employee will avoid the extra Medicare tax, as well as a possible increase in marginal rates on ordinary income. If the employee waits until next year to exercise the option and the additional income pushes him over $200,000/$250,000 limit, some or all of his investment income (from capital gains, interest or dividends) could become subject to the new 3.8 percent Medicare surcharge, says Bruce Brumberg, editor in chief of MyStockOptions.com. In general, the closer the option is to expiring and the deeper it is in the money (the bigger the difference between the market price and strike price), the more sense it makes to exercise this year to avoid a potential tax increase, Brumberg says.