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Your Investments Need a Year-end Tax Review

Give your investments a year-end tax review

As year-end approaches, take a closer look at your investment portfolio. There may be some tax-saving strategies worth considering.


For example:

* Offsetting losses and gains. Harvesting your losses – or gains – is a standard year-end strategy. The goal of this strategy is to offset gains and losses, then to use any excess loss to offset up to $3,000 of ordinary income (e.g., dividends, interest, and wages). If you still have an excess loss, it can be carried over to next year. With long-term capital gain tax rates as high as 20% and the 3.8% net investment income surtax, harvesting losses can be an effective year-end tax-cutting strategy.

* Calculating tax efficiency. Have you shifted your asset allocation and begun buying municipal bonds to reduce the effect of the 3.8% net investment income surtax? Review the impact of the change on any alternative minimum tax you may be liable for. Also, assess whether it makes sense to hold bonds in your retirement fund accounts, such as your IRA. Putting nontaxable municipal bonds in a tax-advantaged retirement account means you're effectively converting sheltered income to taxable income when you eventually take distributions from your IRAs and other retirement accounts.

* Wash sale trap. If you decide to sell a security before year-end to take advantage of a capital loss, be sure to avoid the wash sale trap. If you sell a security and then buy a substantially identical security within a 30-day period before the sale and 30 days after the sale, it's considered a wash sale and the loss is not currently deductible.

Consider all the relevant tax and financial factors in making investment decisions. Contact our office for details and assistance in your year-end portfolio review.

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By Dugan Lopatka - Accountants for Midsize Businesses in Chicago:  CPAs for Small Businesses

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