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The Online Advisor - December 1999
Investors: Consider some year-end tax moves
After one of the longest bull markets in history, with only a few bumps along the way, your investment portfolio may provide a wealth of tax-planning opportunities. But the time to act is now, while there's still time to make a difference in your 1999 taxes.
Review your portfolio
First, review your investment portfolio to see whether you have underperforming investments you want to sell at a loss. Any capital losses you take can be used to offset capital gains you've taken during the year. If you have more losses than gains, you can use the excess losses to offset up to $3,000 of ordinary income for the year.
Separate your capital gains and losses into long-term (those on investments held for more than 12 months) and short-term (on investments held for 12 months or less). Long-term gains are generally taxed at a maximum rate of 20%, compared to a maximum of 39.6% for short-term gains. So it's important to consider how long you have owned an investment before selling it. Sometimes holding it for a few extra days can effectively halve the tax rate on your gain.
Mutual funds require special planning
Most funds distribute their taxable capital gains and dividends for the entire year just before year-end. On that date, shareholders in the fund become liable for taxes on the distribution. If you plan to sell the fund anyway, consider selling before the distribution date so you avoid the additional taxes. But remember that you should never let taxes alone drive your investment decisions. Similarly, if you plan to buy shares of a fund late in the year, it may be worth waiting until after the distribution date. That way you avoid incurring the extra tax liability in the current year.
Give an investment to charity
Another move that could reduce taxes on your investment portfolio is to make charitable contributions with appreciated securities. When you donate securities which have appreciated in value since you bought them, you'll escape paying taxes on the appreciation. And you'll be able to claim a charitable deduction for the full market value of the securities.
For more information on these and other tax-cutting ideas, contact our office soon. Time is running out for moves you can make to cut your 1999 tax bill.