Michael Piershale, a financial advisor in Crystal Lake, Ill., recently had a woman come to his office for financial advice. She had sold stocks and realized a $20,000 profit, on which she had to pay 15 percent in capital gains tax.

Piershale, president of Piershale Financial Group, saw that she also had mutual funds that had lost $30,000. Except it was too late for her to sell the funds to write off the losses for that tax year.

“She could have sold the mutual funds for a loss and used the loss to offset the gains and eliminated the capital gains tax,” Piershale says. “She also could have used $3,000 in losses to offset her regular income, so she would not have had to pay the income tax on that amount. This would have meant a $3,750 drop in her income taxes for that year. She is not rich and that would have been a nice bonus for her.”

This is not an isolated occurrence. Piershale and other advisors say they see it happen over and over again—people hanging onto losing stocks far longer than they should.

In this case, the woman did not know about the possible tax offset. In other cases, people know they should sell their losers, but don't for emotional reasons, advisors say.

People may not want to sell, for example, because they are attached to stock a parent gave them or because they worked for the company.

Another Piershale client had a portfolio that was heavily invested in Enron stock, a company the client liked because he worked there and because the stock was making a steady climb.

“He loved his Enron stock,” Piershale says, “and he argued hard against selling it, but he finally gave in. I have never seen anyone as grateful as he was when Enron stock tanked and he had already sold his. Other clients go to their graves owning stocks they love but should have sold” to harvest the losses or to diversify.

“Some people are married to their stock and will not part with it no matter what the market does,” says Dan Neiman, portfolio manager for the Neiman Funds in Williamsville, N.Y. But that is often the wrong attitude to have when considering the impact of gains or losses on end-of-the-year tax calculations.

“The advisor should be looking for ways to utilize the losses to offset gains to save on taxes,” Neiman adds. “If there are more losses than can be used in one year, the losses can be carried over and used to offset gains in future years.” There is no limit on how long losses can be carried forward. Losses can also be taken against gains a spouse has earned.

Advisors have different techniques to convince clients to sell when they should. Michael Goodman, president of Wealthstream Advisors in New York City, says he has clients in Atlanta who are emotionally tied to their Coca Cola stock because it is a familiar presence or because they work for the company. Also if a client buys a stock on their own they will have a personal stake in it succeeding, which Goodman calls loss aversion.

“I have clients who have stock they bought at $20 and now it is worth $12. I ask them if they would buy it at $12, they say no. So I ask them why they decide to do exactly that every morning that they do not sell,” says Goodman, who is a CPA/PFS, certified in both accounting and financial planning.

“I am offering them money in their pocket, plus we can use the losses to reduce the tax bill. Unfortunately, investing and human nature do not mix well,” he says. “If they are heavily invested in stock of the company they work for, I argue that they should not concentrate their human capital and their investments in the same place.”

Leonard Wright, a CPA/PFS at Northwestern Mutual in the San Diego area, sees clients who need to reallocate their portfolios to diversify.

“I’ve had clients who do not want to sell a particular stock because they saw their parents do well with it and now they have inherited it from their parents and are emotionally attached.

“One client had a concentrated portfolio of several million dollars before 2008. He could have diversified and retired then but he lost half of his money in the recession and was forced to keep working for several years,” Wright says. “I’ve also seen this with clients who own stock in oil and hang onto it because they worked for the oil industry. I try to show them that diversification can help them achieve what is important to them.”

Mackey McNeill, a CPA/PFS who heads Mackey Advisors in Bellevue, Ken., near Cincinnati, says her firm will not take on clients who do not do tax planning each year and look at the gains and losses in their portfolios.

There are a number of strategies that can convince clients to do what is in their best interests, she says. “We may even have to convince them to take some gains this year if they will be in a lower tax bracket now than they will be in the future.”

If clients are holding onto poor performing stocks for sentimental reasons, “we show them that if they want this stock so much, they will have to work an extra five years to compensate. At the end of the day, they usually agree to sell,” she says.

Mackey had one client who inherited a $3 million portfolio with $2.8 million of it invested in her dad’s company. Mackey was told, “Dad never sold and I am never going to sell.” Mackey kept running the numbers for her stock compared to the market as a whole. The firm finally convinced her to sell half of the company stock and then to sell most of the rest in 10 percent increments.

“We do not talk to clients about being emotionally attached to their stocks,” Mackey says. “We just present them with the consequences of not divesting. With the software and tools that are available now, anyone can do this. If an advisor is not doing it, the client needs to push him or her to do what is in the client’s best interest.”