5. Sell some assetsAs you review your investment portfolio, consider selling some assets before the end of the year. There are some tax reasons to do so, regardless of whether you end up with a gain or a loss.
Capital gains tax rates are lower than what's assessed on ordinary income. They were lowered even more as part of the George W. Bush Administration's tax cuts: 15 percent for most investors, zero for those in the two lowest income tax brackets. Those rates are expected to continue through 2010.
Some investors, however, believe the growing federal budget deficit will force Congress to revisit that plan. They suspect that in 2010, lawmakers will bump the rates back to the pre-Bush rate of 20 percent for wealthier taxpayers, and perhaps higher. To guard against facing such a tax price, these folks are planning to sell before 2009 ends so they can lock in the 15 percent rate.
That's the case for some clients of Tom Karsten, Managing Partner at Karsten Tax and Financial Management in Fort Worth, Texas. Karsten says these investors are thinking it "may be wise to lock in gains this year to assure that we get a lower capital gains rate."
On the flip side of the investing coin are losses. Harvesting losses is a traditional end-of-year tax strategy. Any capital losses you record in a tax year can offset any capital gains on which you otherwise would owe taxes. If you have more losses than gains, you can use up to $3,000 of that amount to reduce ordinary taxable income. Just make sure you sell the bad holdings by Dec. 31.
6. Give away stuffDec. 31 is also the deadline to contribute to your favorite charity and claim the gift amount on that year's tax return.
"With the economy, charities need it more this year than most," says Kunkel. "Making a charitable contribution could be as straightforward as writing a check and mailing by Dec. 31 or donating to a food drive during holidays."
In addition, says Kunkel, investors fortunate enough to have appreciated securities can make use of them here, too. If you own a stock that's gained value but no longer fits your investment plan or you think the stock price has maxed out, you can give it directly to charities that accept such gifts. The nonprofit gets the stock, that it can sell and use. You get to deduct the asset's value as a charitable gift. Even better, you won't owe any capital gains taxes on the appreciation.
And, unless Congress acts, 2009 is the last year that IRA owners age 70 ½ or older can roll over up to $100,000 in retirement funds to qualified charities.
7. Make more miscellaneous paymentsAnother itemized deduction that requires taxpayers reach a certain amount is the one for miscellaneous expenses. That limit is 2 percent of adjusted gross income to claim any of the assorted costs. However, there is a variety of expenses you can count here.
One small silver tax lining of this bad economy is that if you're unemployed and searching for work in the same field, you can include those job-hunt costs here. This includes such things as paper for resumes, faxing fees, travel costs and even professional help that you pay for to help you land a position.
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