Serving the Tax Preparation, Accounting, and Financial Planning needs of Franklin, Berkshire and Hampshire, and Worcester Counties.

Tax Preparation & Financial Planning Articles

Planning Can Trim Taxes On Your Investments

Maximize your tax savings this year by reviewing your investment tax planning before year-end.  Here are a few strategies that might reduce your 2007 taxes and prepare you for what's coming in 2008.

1.  Maximize your dividends and capital gains.  Take advantage of the preferred tax treatment on both dividends and long-term (more than 12 months) capital gains.  Review your current stock and other investment holdings in order to generate dividends and create long term goals.

2.  Make the most of your year-end stock sales.  If you have a few loser stocks in your portfolio, consider selling them now.  You can sell enough losers to eliminate all your realized capital gains for the year, plus another $3,000 in regular income.  Be careful to avoid a wash sale (buying the same security within 30 days before or after you sell shares at a loss) since the tax rules disallow the loss.  If you have realized losses over $3,000, consider selling enough of your winners to get back to the $3,000 amount.  Taking those gains will add nothing to your tax bill.

3.  Time your mutual fund transactions.  A key fact to be aware of is that mutual funds are usually required to distribute their income annually to shareholders.  If you purchase a mutual fund just before a distribution date, you will be required to include it in your taxable income.  Since the price of the fund shares before and after a dividend distribution reflect the amount of the dividend, you are actually paying income tax on part of your own purchase price.  To avoid this outcome, call the fund and ask for the ex-dividend date and the estimated payout and make your purchase after that date.

4.  Cut capital gains taxes to zero.  Beginning in 2008, the tax rate on long term gains will drop to zero for taxpayers in the lowest two regular tax brackets.  If you're a single filer with income less than about $32,000 or married with income less than about $64,000, the new zero long-term capital gain rate could apply to you.  In that case, you may want to postpone planned sales until 2008.

5.  Beware the kiddie tax.  Also beginning in 2008, the kiddie tax rules apply to children up to 19 years of age (to 24 for full-time students).  Children subject to the kiddie tax rules will not fully benefit from the new zero capital gains rules.  Now is the time to review your child's stock portfolio and time planned sales to avoid any adverse effect the new rules could have on your situation.

Act now to minimize your 2007 tax bill and position yourself to reduce your 2008 taxes.  Give us a call for help in your planning.