10 Year-End Tax Strategies and Reminders for Investors

10 Year-End Tax Strategies and Reminders

1. Fund your IRA, Roth IRA, or other retirement plans now. Don’t keep earning taxable interest and dividends on that money until April 15; get it in a tax deferred account.

2. Farm for capital losses. In other words, look for stocks that you currently own that are trading at less than what you paid for them. If you have some, seriously consider selling them, and beware of the Wash Sale Rule (see my previous blog about this).

3. Don’t buy any mutual funds now. All funds are required to pay out all capital gains in December, which would be fully taxable to you even if you only own the fund for a couple days. In addition, the fund drops in value by the amount of the capital gain.

4. Get your donations in to your favorite charity, your college, and any other deductible religious or charitable organizations before year end. Don’t forget to donate old clothes, furniture, and other household items, Donate old unwanted books to your local library. Get receipts!

5. Check your one-year holdings. If you have stocks that you have a gain on and are thinking of selling, check to see if you’ve held them for a year or more. If you are a few days away from a year, it may be worth taking the market risk of holding on to the stock for a few more days before selling.

6. Take advantage of your Medical Reimbursement Plan. If you have one, you need to use up all the money you’ve allocated to it during the year. If you don’t use it, you lose it. Determine if you need a new pair of glasses, a new crown, or how about just a year end physical.

7. Pre-pay state and local income taxes. If you make quarterly tax payments to the state, make sure you pay yours by December 31. Don’t wait until January 15. Pay ALL anticipated state income tax by December 31.

8. Donate appreciated stock to charity. You avoid capital gains tax, you preserve your cash, and you receive a tax deduction.

9. When selling a portion of shares of a particular stock, look at the tax consequences. If you have invested in a stock or mutual fund over the years, you will have varying cost bases. Sell the portion with the highest basis to generate the smallest tax impact for the year. (This assumes that your brokerage firm or mutual fund allows you to choose and identify which shares to sell.)

10. If you have stock that became worthless this year, search for and save any information that you can relating to the stock so that you can justify a capital loss for the year. For example, if a stock had been trading for a penny per share, then no trades occurred after June 15, a case could be made that the stock became worthless on that day. Some brokerage firms (e.g. TDAmeritrade) will buy worthless or almost worthless stock from your account so that you can generate the loss. They usually don’t charge more than the total amount of the stock for the commission, and if the stock is completely worthless, they charge a dollar commission.

As always, all of the above suggestions are subject to exceptions and limitations. Don’t act on any of the above until you have discussed it with your CPA or tax advisor. No tax advice is expressed or implied.