Stock losses aren't all bad; they can reduce your tax bill

— -- Q: I need money. Should I sell and take money out of an account that's been killed in the bear market or sell stocks with gains?

A: What you're really asking about is tax-loss harvesting.

Tax-loss harvesting is a technique of selling stocks in such a way that you take maximum advantage of capital gains tax rules. The basic idea is that the Internal Revenue Service allows investors to offset their capital gains, which are taxable, with capital losses.

And to the extent your capital losses exceed your capital gains, you can use them to reduce your ordinary taxable income by up to $3,000 a year.

If you have still more capital losses, greater than that $3,000, the excess can be carried forward until they are exhausted. Here's what the IRS says about it.

Back to your question. There are two main strategies when it comes to selling stocks. One is to raise cash by selling your losers and using the losses to reduce your taxable income this year by $3,000. If your losses exceed that, you can use them to reduce your taxable income in future years.

There is a second approach that would be attractive if you have investments you've owned a long time and have wanted to sell but didn't because of the tax consequences.

Say you sell a stock you bought 15 years ago and have a sizeable gain. At the same time, you sell some losers and use their losses to offset the gains in your big winner.

Remember, though, that you need to pay attention to whether or not you've owned the investments at least a year, as described in the IRS link above.

Either way, using capital losses wisely to offset gains or ordinary income can help ease the pain of the bear market at tax time.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns.