Year End Tax Planning

While the last thing you think about as the holidays approaches is your tax planning, you really should, if you want to make sure you save dollars come tax time in April. Here are my top tax planning tips before December 31st:

1) If you do not qualify for a Roth IRA because of your income ( phase out starts at $166,000 AGI for married couples, $105,000 for single filers) then you should consider making a Non Deductible Traditional IRA contribution- you will be able to convert that in 2010.
2) If you are in over a 28% tax bracket, you should consider maxing out your 401(k) before the end of the year. Look at your remaining paychecks and see what you should increase your deductions to in order to reach the max.- $16,500 for individuals under 50, and $22,000 for over 50. This will help you save more in your tax bill for 2009 as well as save more for your retirement and take advantage of some STILL market lows.
3) Evaluate your nonqualified investment portfolio. ( these are assets that you hold outside of your IRA's and 401(k) plans). For example, stocks or mutual funds you hold in a brokerage account. Look to see if you should sell any losers to reinvest into something better and take a bad situation ( no one likes to admit to having a loss BUT it does happen) and turn it into a tax savings.
EX: I bought GE at $30 and it is now worth $16 per share- if I sell to reinvest in a potentially better performing company, I can write off that loss- up to $3,000 a year right OFF my EARNED income- so if I made $150,000 this year, now my income is $147,000. you can also use it to offset future capital gains! Keep in mind, if you want to buy back the same position, because of wash sale rules, you have to wait 31 days. If you are concerned about not being in a position over those 31 days, then you can still invest in something else. For example, if I sell my gold mining stock at a loss, but still believe in my gold mining stock, I could buy a GLD etf for those 30 days to make sure I still have exposure to the gold market.