But in this world nothing can be said to be certain, except death and taxes.
Benjamin Franklin (1706 - 1790).
We’ve all heard Ben Franklin’s remark about the certainty of death and taxes, but notice he didn’t say a word about the size of the tax bite. In many cases, that can be up to you. Not all gains and losses are taxed equally. Wise tax planning means taking charge of your income and expenses, realizing that different types of income are taxed differently, using investment losses to directly offset investment gains and income and timing the payment of certain bills or accepting income to make a real difference. How the IRS views your income has a major impact on your taxes.
Given the financial market’s recent upward trend, now may be an ideal time to analyze your current holdings, reassess risk tolerance and determine whether your investment objectives are properly aligned with your portfolio.
Tax planning ideally should be a year-round activity, but the reality is, the idea begins to seem more relevant when the holiday season rolls around, indicating that the end of the tax year is at hand. The recent cooler weather is another reminder that it’s time to think about these matters.
Chances are, some tax-savings options are still available to you if you make your moves before year-end. In doing so, you should consider all aspects of your portfolio, ask how they’re helping you work toward your financial goals, and then look into any troublesome details. In the process, you may be able to more appropriately position your portfolio for the future; take advantage of certain investment losses through selective tax loss harvesting; optimize your retirement planning; maximize your annual gift exclusion and make gifts of appreciated assets; and plan for your estate and your legacy.
Estate planning and charitable giving
Charitable donations can generate a tax deduction and reduce your taxable estate later on. Strategies to explore include donor advised funds, charitable trusts, charity-advised accounts and pooled income funds. Current tax laws allow for gifting a maximum $13,000, or $26,000 per couple, each calendar year to as many individuals as you would like, exempt of gift tax.
There is much to consider, of course, including different types of income, the cost bases of your securities, your charitable and family gifting wishes and whether you may be subject to the alternative minimum tax (AMT), which disallows many of the deductions available under the regular tax structure.
Don’t miss the opportunity to invest for retirement while minimizing taxes. This chart provides information on contributions and deadlines that are important to your planning process. If it is in your favor, max out retirement plan contributions and contribute early for 2010. Investors should always discuss any tax matters with the appropriate tax professional.
These complexities usually can’t be determined on a dime. That’s why now – not the last few days of the year – is the time to gather the appropriate financial information and make careful decisions. Work with your financial professionals to review your situation and determine what strategies may work most appropriately to reduce your tax obligation.
Darcie Guerin, financial advisor and branch manager, Raymond James & Associates, Inc. 606 Bald Eagle Drive, Suite 401, Marco Island, FL 34145, provides this article. Gulfshore Life magazine named Guerin as one of the Best Personal Wealth Managers in the Southwest Florida area for 2009. If you have questions, e-mail her at Darcie.Guerin@RaymondJames.com or call 389-1041, toll free (866) 343-0882 or visit RaymondJames.com/Darcie. Past performance may not be indicative of future results.