Tag Archives: tax.planning

Don’t leave $3000 on the table.

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Your 2014 tax planning starts now. While you are receiving all of your W-2’s and 1099’s, you have the opportunity to rebalance your portfolio and do some tax planning at the same time. Take a close look at the cost basis on the holdings in your non-retirement accounts. As you rebalance, you can sell off some losses and harvest some gains. You can match your gains and losses against each other but what if you have more loss than gain? Each year you can write off up to $3000 in losses against ordinary income. So please, don’t leave that $3000 on the table.

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These changes may impact your 2013 tax return

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It’s that time of year – tax time. There have been some important changes to the 2013 tax return that you must be aware of. Here are a few of them:

New 3.8% Medicare surtax. If you are single with an AGI over $200k, married filing joint AGI over $250k, you will have to pay an additional 3.8% surtax on capital gain for Medicare purposes. This brings the long term capital gains rate to 23.8% vs. 15% for those to whom this will apply.

New Medicare surtax for those of us who are self-employed. If your salary and/or Self Employment income is over $200k single, $250k married filing joint, you will now pay and additional .9% on top of the 2.9% we are currently paying.

Itemized deductions have a new threshold. If, for example, your medical expenses exceeded 7.5% of your AGI, you were good to deduct. Now, that threshold is 10%. That is a 25% increase in what you have to spend in order to deduct those expenses.

These are just a few of the big changes to the 2013 tax return. If you do your own taxes, please make sure you are up to date on all of the changes.

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It is harvesting time – or is it?

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The end of the year is the time when we all look at our tax picture to see what can be done to lower what we might owe. Harvesting capital gains, especially when we know the tax rates for capital gains most likely will be higher next year, is one approach. But think twice before you sell.

One question to ask is: “Can you afford to shrink your capital, and therefore future wealth?” The answer is to harvest your gain up to a point. Look at any investment losses you may have + $3000 of ordinary income over that loss amount.

By using this approach, you can reduce your current tax bill but not at the expense of your future.

 

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You have a question – I have an opinion.

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Q: We hear so much about the “fiscal cliff”, what changes should an investor make to avoid this financial meltdown?

A: If an investor already has a reasonable investment strategy that reflects their risk tolerance and time horizon, you probably should not make any changes, nothing dramatic anyway.

My opinion: You should have regular reviews with your Certified Financial Planner® and share your concerns. For non-retirement accounts, I feel that tax-free investments need to play a bigger part of the portfolio. For retirement accounts, I am looking at mutual funds that have a lot of consumer staples, in other words, companies that we will all spend money with no matter what the circumstances are.

 

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