2000 Year-End Tax Planning
For Investors
The following are generally applicable year-end
tax-saving tips for investors. However, individual circumstances can have a significant
impact on the appropriateness of tax strategies for a particular person. Contact us for a
tax-planning meeting where we can discuss which approach would be best for you.
- The rules for capital gains are basically the same as they were last
year. The top capital gains rate stays at 20 percent, dropping to 10 percent for taxpayers
in the 15 percent bracket. The long-term capital gains holding period is still 12 months,
and net capital losses can still be used to offset up to $3,000 of ordinary income.
- Recent volatility in the stock market provides real tax planning
advantages. Carefully review your portfolio, identifying where you might want to offset
gains with losses. Up to $3,000 of net losses can be used to offset ordinary income for
the year. This can be a good way to reduce your AGI if you're having trouble qualifying
for one of the many deductions or credits that have AGI phase-outs.
- Watch your timing if you're buying or selling mutual funds late in
the year. Mutual funds generally distribute capital gains every year, and in recent years
many investors have been surprised by the amount of capital gains passed through by their
funds. Call your mutual fund and ask for an estimate of their 2000 capital gain
distributions. Once you have this information, you may be able to do some planning,
instead of being surprised at the last minute.
- If you're selling shares of stock, consider using the specific
identification method rather than the average cost method to determine your cost basis.
- By selecting the appropriate investments from your portfolio, you can
achieve the lowest tax rate on your gains. If possible, try to minimize taking both
long-term gains and capital losses in the same year. It's better to take your long-term
gains one year and enjoy the favorable tax rate, and your losses the next year when you
can use them to offset up to $3,000 of ordinary income, which is taxed at higher rates. If
you take them in the same year, the losses are first netted against the gains and produce
lower tax savings.
- Another strategy is to avoid the capital gains tax altogether by
donating to charity stocks which have appreciated in value instead of making a cash
donation. After several years of a strong stock market, many people are sitting on stocks
and mutual funds with large built-in gains. If you are fortunate enough to be in this
situation, remember that shares of an appreciated stock or mutual fund can be a valuable
planning tool. For example, you can use your stock or mutual fund, instead of cash, to
make a charitable contribution. You'll generally be able to deduct the full market value
of your security, but you won't have to pay tax on the built-in gain. Note, however, that
you must have owned the shares for more than 18 months for this strategy to work under the
new rules.
- You can also use appreciated securities to make family gifts. If the
family member is in a lower tax bracket, he or she can sell the security and pay capital
gains tax at a lower rate than yours.
© Copyright 2000 Raymond S. Kulzick. All rights reserved. 001124.
This publication provides business, financial planning,
and/or tax information to our clients. All material is for general information only and
should not be acted upon without seeking appropriate professional assistance.
Contact rkulzick@kulzick.com with questions or
comments about this web site.
Copyright © 2000 Kulzick Associates, PA - Last modified: September 13, 2008