Tax planning needn’t await the end of the year

Published 10:20 am Friday, November 27, 2009

The word from tax specialists is that few changes are likely for the 2010 tax year—the personal exemption ($3,650) and the gift-tax exclusion ($13,000), among other tax-related figures, are expected to remain as they are.

But 2009 taxes have yet to be reckoned, and now is a good time to plan your strategies and consider tax-savings moves before Dec. 31 shows up on your calendar.

Keep your likely tax bracket in mind, and be aware that short-term capital gains, interest and dividends from money market mutual funds and real estate investment funds, for example, are taxed as income (up to 35 percent), whereas long-term capital gains and qualified dividends are taxed at 15 percent.

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If an investment didn’t work out as expected and you’re convinced giving it more time won’t help, you might consider selling it at a loss before year’s end. Losses can be beneficial in that they directly offset capital gains, as well as up to $3,000 of ordinary income (any excess is carried over to future years).

Have you fully funded your 401(k) or 403(b) account ($16,500 plus another $5,500 if you’re 50 or older) and/or your traditional IRA ($5,000 plus another $1,000 if you’re 50 or older)? You have until April 15, 2010, to finish topping up your 2009 IRA.

Take advantage of any investment growth by funding a 2010 IRA in January. Have you funded a tax-advantaged method of saving for your children’s or grandchildren’s college educations?

You may realize a state tax break by funding certain plans.

RMD rollover?

Don’t forget to roll back any unneeded required minimum distributions (RMD) from your traditional IRA.

You can put the money back into an IRA without penalty or tax consequences as long as you do so within 60 days of receiving it or by Nov. 30, whichever is later.

RMDs are considered ordinary income, but the requirement to take one was suspended for 2009. It returns in 2010.

There’s much more to consider, including charitable giving, deciding when to exercise stock options and projecting whether you could be subject to the alternative minimum tax (AMT). Think through the possibilities before the year’s end is in sight. I’ll be happy to assist, so don’t hesitate to call me.