Last minute tax tips

Published 1:19 pm Friday, December 5, 2008

Here’s a potpourri of rules and ideas that are important for year-end planning.

Securities sales

To realize a gain or loss in 2008, the trade date must occur on or before Dec. 31, 2008. Settlement date is irrelevant for publicly traded securities.

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The limit on the deduction of capital losses in excess of capital gains is $3,000. Any net capital losses in excess of $3,000 are carried over into 2009. Both short- and long-term losses are counted on a dollar-for-dollar basis. A few years ago, long-term losses were worth only 50 cents on the $1. No longer.

The holding period to achieve a long-term capital gain or loss is now more than 12 months. Count the period from trade date to trade date. Whether a gain is short- or long-term does make a difference. The date a long-term gain is realized also makes a difference. In general, net short-term gains are subject to a 35 percent maximum rate, while net long-term gains are taxed at a maximum of 15 percent. However, some gains may be subject to a 25 or 28 percent rate, such as gains on the sale of art or collectibles and gains on certain depreciated real property.

Retirement plans

If you are a calendar year taxpayer, the deadline for establishing a qualified retirement plan for deductions against 2008 income is Dec. 31, 2008.

The contribution need not be made until the tax filing deadline of the taxpayer’s return. Note; however, that a SEP plan can still be established for 2008 deductions up until the return due date for 2008.

In order for a distribution to qualify as a lump sum distribution, 100 percent of the balance to the credit of the employee must be distributed in one taxable year. If you have retired this year, make sure that you received (or will receive by year-end) everything you have coming under your former employer’s qualified retirement plan.

Charitable contributions

Many people make their annual charitable contributions during the holidays. If you’re going to make a cash contribution, mail the check by Dec. 31 to qualify for a 2008 deduction. Giving a personal note or I.O.U. to the charity won’t qualify for a deduction; but, donating with a credit card does.

Making gifts of securities is a very effective way to make charitable contributions. Charities are happy to receive odd lots. Donations of long-term capital gain property are deductible based on fair market value. It doesn’t make sense to donate short-term capital gain property; your deduction will be limited to your basis.

Also, it doesn’t make sense to donate securities with losses; sell the stock and donate the cash. To claim a 2008 deduction, the security must actually be transferred to the charity before Dec. 31.

Check in with your financial planner near the end of the year to see what deadlines and opportunities apply to your particular financial situation.