Year End Tax Planning Strategies to Save You Money

Don’t look now because 2012 is right around the corner.  During this time of the year, our firm is busy trying to help our clients minimize taxes for 2011.  I have listed a few of these strategies for you to consider as the end of the year approaches.  Please remember to consult with your professional tax, estate or investment advisor before implementing any of these strategies.


Mutual Fund Distributions – Around this time of the year, I contact mutual fund companies to get estimates of taxable gain distributions and expected distribution dates.  I will then review the non tax-deferred accounts to see if it makes sense to sell a fund before the distribution date.  This strategy can help my clients avoid the tax ramifications associated with the fund.  I am also careful about adding new money to funds that are expecting to pay significant distributions this year.  In this case, I will wait until after the distribution has been paid or invest in another fund that is more tax efficient.

Carefully Review Your Portfolio For Losses – Realizing a loss on a fund can help to make the most out of a bad situation.  Nobody wants to admit they have made a bad investment decision, but taking such losses can offset capital gains in your account.  You may deduct up to $3,000 in excess losses each year and any remaining losses can be carried forward to future tax years.  Harvesting such losses can make future investment decisions a little less painful as you may want to sell a stock or fund but are hesitant to do so because of the tax implications.  Be careful not to repurchase any of the sold securities for at least 30 days to avoid the Wash Sale Rule which could void your loss for tax purposes.

Plan on gifting this holiday season? – Instead of giving cash to your favorite charity, try giving shares of an appreciated stock or mutual fund.  This move can be beneficial.  Not only do you get to take the tax deduction on the gift, you also avoid paying capital gains tax on the security.  After the gifting, you can buy the stock back if you want to keep it in your portfolio.  This will provide a new “step up” cost basis on the stock or fund purchase when you sell it in the future.  Be careful not to gift depreciated assets as this will erase the advantages of selling a security at a loss (as discussed above).

Required Minimum Distributions – If you are 70 ½ or older, don’t forget to take your Required Minimum Distribution (RMD) before the end of the year.  You are required to take your RMD before December 31st to avoid a 50% penalty from the IRS unless you turn 70 ½ this year.  The RMD rules applies to traditional IRA’s, IRA-based plans such as SEP’s, SARSEP’s, and Simple IRA’s and to employer sponsored retirement plans including; profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans.  The RMD rules also apply to Roth 401(k) accounts.  However, they do not apply to Roth IRAs while the owner is alive.*


Check Beneficiary Forms – Although this is not an end of the year requirement for tax purposes, I always like to remind clients to review their beneficiary information to make sure the forms reflect the wishes for their estate.  Another great tax saving tip for your estate is to stretch your IRA.  This concept can save thousands of dollars for your family.

For more information about any of these tips, please contact my office at 252-439-1344

Have a happy and safe holiday season!


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