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 dividend date.

  • 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.