About this time every year, you ll read about the standard tax planning strategy of harvesting losses from your taxable accounts before year-end. This means selling some loser securities (currently worth less than what you paid for them) to offset capital gains you collected earlier this year. Once you ve zeroed out any gains, you can use up to another $3,000 of capital losses to offset that much ordinary income from salary, self-employment activities, alimony, interest or whatever. Any excess capital losses get carried forward to next year. Ho hum. You probably know this drill by heart. (If not, click here

But as you may have noticed, this has not exactly been a normal year. Maybe you don t have any capital gains from earlier in the year left to offset. Or maybe you only have a small amount. No matter. Selling a bunch of losers can still make lots of sense -- even if harvesting the resulting capital losses won t do much, if anything, to lower this year s tax bill. Here are three big reasons why harvesting losses can still be a smart year-end move, even in today s rotten circumstances.

Reason No. 1: You Gotta Do What You Gotta Do

Worrying about triggering big capital losses that you won t be able to deduct on your 2008 Schedule D should not slow you down if you ve got loser shares you want to unload. Bite the bullet and sell what you think you need to sell, based on your best investing judgment. Book the resulting excess capital losses, and don t look back. I ll explain how those losses can actually do you a lot more good than you might think -- starting next year. Meanwhile you ll have liberated some cash that you can redeploy in more promising shares. Psychologically, that s a good thing, because you can start over with a clean slate and a better attitude.

Reason No. 2: You ll Have Great Tax Flexibility Next Year and Beyond

Say you sell a bunch of dogs this year, and wind up with a $75,000 capital loss carryover into 2009. You can use that loss carryover to shelter up to $75,000 of gains next year and beyond. The great thing is, you can shelter both long-term gains and short-term gains.

For example, you could use part of your $75,000 loss carryover to shelter $35,000 of 2009 short-term gains that would otherwise be taxed at your regular federal income tax rate of up to 35% (maybe even higher depending on what our beloved Washington politicians decide to do to us).

Thanks to your handy capital loss carryover, however, your personal tax rate on those 2009 short-term gains will be 0%. And you won t have to hold onto your winners for at least a year and a day to get that 0% rate. Your gains can be from shares you held for only a few days or a few weeks. In other words, you can sell winners whenever you darn want to next year and beyond (up to $75,000 of gains) without giving a care about triggering a tax bill. That s tax flexibility!

Reason No. 3: You May Be Glad If Capital Gains Rates Go Up

As you know, the current maximum federal income tax rate on long-term capital gains is only 15%. I think it could easily be 20% or maybe even 28% for 2009 and beyond. However, if you trigger excess capital losses this year, you ll be able to use them to shelter future long-term gains that would otherwise be taxed at rates a lot higher than what you ve grown accustomed to.

Going back to our little example, say you use up your remaining $40,000 of capital loss carryover from 2008 ($75,000 - $35,000 used in 2009) to shelter $40,000 worth of long-term gains in 2009 through 2011. Your federal tax rate on those gains will be 0%, and you ve now used up the entire excess capital loss that you generated by harvesting losses in 2008. It took you a while to do it, but you can see the tax-saving benefits.

The Bottom Line

Please understand I m not advising anyone to sell shares this year (or any year) solely to generate capital losses. You should only sell stuff you want to sell anyway. The resulting capital losses are a very favorable side effect, because they create the opportunity for lower tax bills in the future when things improve. Plus, it will feel really good to have some cash that you can reinvest in things you actually like.