Review your investments to increase after-tax returns
This is a good time of year to review and rebalance your investment portfolio. Although the recent market volatility has been disastrous for many investors, there may still be some year-end moves you can make that will cut your 2009 taxes and increase your after-tax returns. As you identify investments to buy and sell, keep the following tax implications in mind:
- First, remember that any sales you make within your retirement accounts are free of tax. If you need to trade just to rebalance your portfolio, consider doing it in your IRA or 401(k)
plan.
- If you’re selling investments to weed out poor performers, remember that losses can cut your tax bill. You can use capital losses to offset taxable gains, plus up to $3,000 of other
income. If you still have losses left over, you can carry them forward to use in future years.
- Not all dividends on stocks and mutual funds are taxed at the same rate. “Qualified” dividends paid by most U.S. and some foreign companies enjoy lower rates of 5% or 15%, depending on your tax bracket.
- You can often manage the size of your gain or loss when you decide to sell some, but not all, of a particular stock or mutual fund. To do this, you must have kept good records of the date and the price for each share purchase. By selling the highest cost shares first, you’ll minimize your taxable gain or maximize your loss. You must specify the particular shares you are selling at the time you sell.
- Don’t forget to include any reinvested dividends when you calculate your cost basis for mutual fund shares.
- If you’re planning to buy or sell mutual fund shares close to year-end, take the tax consequences of the fund’s year-end distribution into account.
- If you want to dispose of stock that has appreciated, consider donating it to your favorite charity. You can generally claim a deduction for the appreciated value and avoid paying any tax on your gain.
Give us a call at 650.344.6525 to find out more about year-end investment tax planning. IRS urges
Tags: how to cut taxes, increase after tax returns, investment reviews