Year End Tax Planning Strategies to Save you Money
http://www.pcwomensjournal.com/articles/148/1/Year-End-Tax-Planning-Strategies-to-Save-you-Money/Page1.html
David Damm
David Damm, AIFCarolina Wealth
1706-A East Arlington Blvd.
Greenville, NC 27858
252-439-1344
www.carolinawealth.com
By David Damm
Published on 12/3/2010
Don’t look now because 2011 is right around the corner. During this time of the year, our firm is busy trying to help our clients minimize taxes for 2010. I have listed a few of these strategies for you to consider as the end of the year approaches. Please remember to consult with your professional tax, estate or investment advisor before implementing any of these strategies.
Don’t look now because 2011 is right around the corner. During this time of the year, our firm is busy trying to help our clients minimize taxes for 2010. I have listed a few of these strategies for you to consider as the end of the year approaches. Please remember to consult with your professional tax, estate or investment advisor before implementing any of these strategies.
Mutual Fund Distributions - Around this time of the year, I contact mutual fund companies to get estimates of taxable gain distributions and expected distribution dates. I will then review the non tax-deferred accounts to see if it makes sense to sell a fund before the distribution date. This strategy can help my clients avoid the tax ramifications associated with the fund. I am also careful about adding new money to funds that are expecting to pay significant distributions this year. In this case, I will wait until after the distribution has been paid or invest in another fund that is more tax efficient.
Carefully Review Your Portfolio For Losses – Realizing a loss on a fund can help to make the most out of a bad situation. Nobody wants to admit they have made a bad investment decision, but taking such losses can offset capital gains in your account. You may deduct up to $3,000 in excess losses each year and any remaining losses can be carried forward to future tax years. Harvesting such losses can make future investment decisions a little less painful as you may want to sell a stock or fund but are hesitant to do so because of the tax implications. Be careful not to repurchase any of the sold securities for at least 30 days to avoid the “Wash Sale Rule” which could void your loss for tax purposes.
Plan on gifting this holiday season? - Instead of giving cash to your favorite charity, try giving shares of an appreciated stock or mutual fund. This move can be beneficial. Not only do you get to take the tax deduction on the gift, you also avoid paying capital gains tax on the security. After the gifting, you can buy the stock back if you want to keep it in your portfolio. This will provide a new “step up” cost basis on the stock or fund purchase when you sell it in the future. Be careful not to gift depreciated assets as this will erase the advantages of selling a security at a loss (as discussed above).
Other Investment and Tax Advice for 2010
Don’t forget to take your Required Minimum Distributions (RMD) this year - Last year, the requirement to take out a minimum distribution from a retirement account in the year you turn 70 ½ was removed. It’s back for 2010, so make sure you take out the minimum requirement to avoid a 50% penalty for missed distributions.
Roth IRA Conversions - A special deal is available for those who would like to convert their IRA account to a Roth IRA in 2010. If you make the conversion prior to Dec. 31st, you are able to split the income taxes equally over the 2011 and 2012 tax years. If the conversion is made after Dec. 31st, the income tax will be applied during the year of the conversion.
Check Beneficiary forms - Although this is not an end of the year requirement for tax purposes, I always like to remind clients to review their beneficiary information to make sure the forms reflect the wishes for their estate.
Have a happy and safe holiday season!
Mutual Fund Distributions - Around this time of the year, I contact mutual fund companies to get estimates of taxable gain distributions and expected distribution dates. I will then review the non tax-deferred accounts to see if it makes sense to sell a fund before the distribution date. This strategy can help my clients avoid the tax ramifications associated with the fund. I am also careful about adding new money to funds that are expecting to pay significant distributions this year. In this case, I will wait until after the distribution has been paid or invest in another fund that is more tax efficient.
Carefully Review Your Portfolio For Losses – Realizing a loss on a fund can help to make the most out of a bad situation. Nobody wants to admit they have made a bad investment decision, but taking such losses can offset capital gains in your account. You may deduct up to $3,000 in excess losses each year and any remaining losses can be carried forward to future tax years. Harvesting such losses can make future investment decisions a little less painful as you may want to sell a stock or fund but are hesitant to do so because of the tax implications. Be careful not to repurchase any of the sold securities for at least 30 days to avoid the “Wash Sale Rule” which could void your loss for tax purposes.
Plan on gifting this holiday season? - Instead of giving cash to your favorite charity, try giving shares of an appreciated stock or mutual fund. This move can be beneficial. Not only do you get to take the tax deduction on the gift, you also avoid paying capital gains tax on the security. After the gifting, you can buy the stock back if you want to keep it in your portfolio. This will provide a new “step up” cost basis on the stock or fund purchase when you sell it in the future. Be careful not to gift depreciated assets as this will erase the advantages of selling a security at a loss (as discussed above).
Other Investment and Tax Advice for 2010
Don’t forget to take your Required Minimum Distributions (RMD) this year - Last year, the requirement to take out a minimum distribution from a retirement account in the year you turn 70 ½ was removed. It’s back for 2010, so make sure you take out the minimum requirement to avoid a 50% penalty for missed distributions.
Roth IRA Conversions - A special deal is available for those who would like to convert their IRA account to a Roth IRA in 2010. If you make the conversion prior to Dec. 31st, you are able to split the income taxes equally over the 2011 and 2012 tax years. If the conversion is made after Dec. 31st, the income tax will be applied during the year of the conversion.
Check Beneficiary forms - Although this is not an end of the year requirement for tax purposes, I always like to remind clients to review their beneficiary information to make sure the forms reflect the wishes for their estate.
Have a happy and safe holiday season!