Investment income also will be taxed at higher rates. Most taxpayers now pay maximum long-term capital gain and qualified dividend rates of 15 percent; some lower-income taxpayers don't owe any taxes on investment earnings.
But in 2011, capital gains tax rates are scheduled to return to 20 percent and 10 percent.
As with income tax advice, the standard investment recommendations are reversed: 2010 might be the year to sell that stock that has appreciated nicely so you can take advantage of the lower capital gains rate.
Similarly, hold on to to possible capital losses. These will be more valuable in future years when the capital gains and ordinary income tax rates are higher, says Bard Malovany, Certified Financial Planner with Sagemark Consulting in Vienna, Va. You can use those losses to offset gains, and when you have more losses than gains, you can use up to $3,000 in excess losses to reduce your regular taxable income.
In examining your portfolio for possible sales, also review your income streams. "Since the lower tax rates on dividends are expiring, consider tax-exempt investments if you are in the soon-to-be 28 percent or higher bracket," says Bryan Knuff, CPA and principal at Bryan Knuff & Associates in Boise, Idaho.