APCCPA :: Profitability Consultants

Mid-Year Tax Planning

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act (ARRA) of 2009. The highlights of this Act are:

Energy Efficiency and Renewable Energy Incentives
A first-time homebuyer credit of up to $8,000 for purchases that close after April 8, 2008 and before Dec 1, 2009.
UP to $2,400 in Unemployment Benefits Tax Free in 2009.
Vehicle Tax Deduction – allowing the deduction of state, local, and excise taxes paid on the purchase of a new car after February 17, 2009 through the end of the year.

Tax Strategies for Your Investment Portfolio

The current tax rate of long-term capital gains from selling stock and mutual funds is 15%. You can shelter your gains from taxation and owe nothing to the IRS as long as losses from selling losing stocks fully offset the gains that you have from selling winning stocks.

The maximum capital loss deduction per tax year is $3,000.
If your losses exceed the limitation of $3,000, any excess losses can be carryover to future tax years.

If you do have excess losses, you don’t have to worry about holding onto profitable positions for over a year just to get better tax results.

Sell Winner Shares from Retirement Accounts; Sell Loser Shares from Taxable Accounts.

Gifts to Relatives:

Give away winner shares but sell loser shares and give away the cash.

When giving to relatives, don’t give away loser shares. Instead sell the shares, and take advantage of the resulting capital loss then give the cash sale proceeds to the relative.
Give away winner shares to relatives. They would probably pay a lower tax rate than if you would have sold them. Relatives who are in the 10% or 15% tax bracket will generally pay 0% on long-term gains.
Beware if you give your winner shares to relatives under age 24 because gains recognized may be taxed at his or her parent’s higher rates under the Kiddie Tax rules.

Gifts to Charity:

Sell loser shares to claim the capital loss on your return then give the sales proceeds to a charity and claim the write-off (if itemizing deductions). This results in a double tax benefit.
Give away winner shares to charity instead of giving cash. This also results in a double tax benefit

The charitable deduction would equal the fair market value at the time of the gift
You do not have to worry about the capital gains tax because you have donated your shares to charity.

Convert Your Traditional IRA into a Roth IRA

A Roth conversion is treated as a taxable liquidation of your traditional IRA followed by a non-deductible contribution to the new Roth account. This may be a small price to pay for future tax savings. After the conversion, all the income and gains that accumulate in your Roth account, and all withdrawals, will be totally free of any federal taxes.