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To
Your Wealth Column Year
End Tax Advantage Strategies BY
MICHAEL P. HAUBRICH, CFP |
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In the flurry of activity that
comes with the pending holiday season, it’s important to remember that soon
the year will end and with it, tax saving opportunities. Amid gift buying and
visits with family and friends, a wise investor should be sure to take advantage
of tax benefits, which could help next April 15 feel more like a holiday. This protracted bear market has
given investors a lot of paper losses. Now is the time to decide if those
unrealized losses should be converted into realized losses and have Uncle Sam
absorb some of the pain. Realizing losses in other investments you may be
holding can offset taxable distributions you may have or will receive from
mutual funds this year. Beware, however, year-end tax
selling can be tricky business – be sure you know what you are doing or
consult your financial advisor before you start selling anything. The first step is to identify what
will happen if you do nothing through the end of the year. Contact your
broker to get a year-to-date realized gains and loss report including
projected mutual fund distributions that will be made before the end of the
year. Don't forget that transfers from one mutual fund to another are
considered sales. This is true even if the same investment company holds both
funds and doesn't charge for fund transfers. Also get a report of your
unrealized gains and losses on the securities you own. Current law allows you to take a
net loss of up to $3,000 for the year. Any amount above that limit can be
taken as a loss in future years. Discussions are under way in If you have a gain projected for
the year, look for stocks or funds that have dropped in price below your cost
basis. Selling those securities will give you losses you can use to offset
gains from other investments. However, this close to the end of the year,
beware of the "wash sale" rule, which basically says that if you
sell a security at a loss and then buy the same investment within 30 days,
you don’t get to realize the original loss on your taxes. If you wish to keep a particular
stock for the long term, selling and waiting the 30 days to repurchase it is
not advisable, especially when there is extreme market volatility as we have
recently experienced. The price may increase by an amount that exceeds the
tax loss advantage. An alternative approach is to buy a similar stock or
security to the one you are selling. This is less risky than betting that the
stock price will not move against you while the wash sale rule applies. Check
with your advisor for appropriate substitutes. This brief review does not cover
some significant issues pertaining to tax selling strategies. Since there are
various options and various risks, it is advisable to seek professional help
whenever you make changes that affect your taxes and investments. Another year-end tax advantage
strategy is to contribute to the season’s spirit of giving. Giving cash to
your favorite charity is great, but donations of non-cash items are also
deductible up to their market value. Clean out your basement – that unused
furniture or article of clothing can be tax saving opportunities. Gifts of appreciated property such
as real estate or securities leverages the tax benefits of donating. Be sure
that the organizations to which you are donating are tax-exempt and that you
secure receipts for donations, particularly those over $250. ‘Tis
indeed the season to be jolly. The market is finally making a show at
recovery, the holidays are fast approaching, and now is the time to ensure
that April 15 doesn’t bring with it any extra or unplanned tax burden. Michael Haubrich,
CFP, is president of Financial Service Group, Inc., a registered investment
advisory firm in |