Tax Strategies for the Investor
- Check your gain or loss
status before the end of the year. Recognize any
capital losses so they can offset capital gains and
up to $3,000 of ordinary income. If
you have more losses than gains, consider selling
gain property to offset those losses.
- Beware of the "kiddie tax." Under current rules, children's unearned income over $2,100 will be taxed at the parents' generally higher marginal tax rate until the children reach age 18 (age 19 if the child does not provide more than one half of his/her own support or age 24 for full-time students) in 2016.
- Plan carefully when you are exercising incentive stock options (ISOs). Exercising an ISO creates an AMT adjustment, but produces no corresponding cash with which to pay any resulting AMT. Selling the stock to generate cash may not solve the problem if the stock has dropped in value or is sold prior to meeting ISO time requirements.
- Consider a like-kind
exchange to defer gain on the sale of business
or investment property.
- Delay late-year mutual
fund investments until after the fund's
- Save every statement you receive to calculate exact
gains or losses on mutual
fund investments. Remember that reinvested dividends increase
your tax basis.
- Avoid investing in tax-exempt
bonds if they generate interest subject to the AMT.
- Inform your broker
that you wish to sell the shares with the
highest basis when selling
shares of stock that you purchased at different
prices at different times. This will minimize taxable gain or
maximize deductible loss.
- Count reinvested dividends as part of your
tax basis when you sell stock to avoid being taxed twice.
- Share your next good
investment opportunity with your children, even if
you have to gift them the necessary capital to
participate. They will pay the income tax on any
gain recognized on the investment, and the
appreciation will be kept out of your estate.