It’s hard to believe summer is over and the leaves are starting to turn. But it also means that it’s time for the team at R.W. Rogé & Company to start preparing year-end tax planning for our clients, including things we do “behind the scenes” to make your portfolio more tax efficient.
In light of the major revisions in the income tax that may occur in 2011, if the so-called Bush tax cuts expire, we are reviewing your portfolios to take advantage of any capital gains/losses that may have been generated due to the recent upturn in the market, with special attention being paid to capital gains. The current rate of 15% (10% for those individuals in lower tax brackets) will expire on Dec. 31, 2010. The new proposed capital gain rate, in 2011, may be as high as 28% … a significant change!
While we are minding the broader implications of these developments on your portfolios, here are some additional items you should consider on a more personal level that may help you reduce what you owe Uncle Sam:
1. Mortgage Payments Make your Jan. 1, 2011, mortgage payment on or before Dec. 31, 2010. This allows you to take the additional deduction for the interest paid.
2. Flexible Spending Plan Participants If you participate in a Flexible Spending Plan which means you have put aside tax-exempt earnings to cover such things as medical, dental or child-care expenses. You will need to use the remaining funds in your account before Dec. 31, 2010. These plans are known as “use it or lose it” for good reason.
3. Self-Employed Individuals For the self-employed, now is the time of year to purchase the supplies and business equipment you will need, but have delayed getting. Also, send the last invoices of the year late in December so you will receive payment in January, thereby deferring income until next year. This strategy may help prevent you from being bumped up to a higher tax bracket.
4. Charitable Donations Now that the fall season is here and you’re transitioning to your cold season wardrobe, consider donating any unwanted clothing as well as other household items to a local charity. Be sure you obtain a receipt from the charity as proof for the deduction on your tax return.
5. Tax-Preparation Documents Start a folder for any paperwork that may be required by your accountant for tax preparation. That could include receipts for charitable deductions, statements of medical expenses, the year-end statement for your mortgage indicating the interest and real estate taxes paid, and year-end receipts from your custodian reflecting IRA or SEP-IRA contributions paid.
6. IRA Required Minimum Distributions If you are over seventy and a half be sure that your IRA Required Minimum Distribution is completed by Dec. 31, 2010. Otherwise, you will incur a 10% penalty on the amount not withdrawn. (We take care of this for our clients … so not to worry).
7. IRA Conversions For those considering converting to a Roth IRA, this is a great time to do so because taxes will likely increase on most income-tax brackets next year, making the rollover more costly.