Situation:This is the perfect time for your clients to fine-tune their 2008 tax situation and make certain moves to save money. As the end of the calendar-year approaches, advisers need to encourage their clients to take some steps in order to start the tax preparation process.
Solution:First, encourage your clients to go over their itemized deductions. If they are not as high as the allowable standard deduction, they may want to consider delaying some until next year.
On the other hand, if they are close to the amount, they may want to consider paying for some others this year even if it means using the standard deduction next year.
Certain itemized deductions that can be shifted are state income taxes, property taxes, medical expenses and donations.
However, remember to be on the watch for the alternative minimum tax. If your client is exposed to AMT, they will not be able to take advantage of some of the above deductions.
Next, your clients should review their current tax obligations.
If it looks like taxes have been underpaid throughout the year, they may want to consider increasing withholding from future paychecks.
Although this year has been turbulent for the stock market, taxpayers with losses in their portfolios can use this time to review their investments. Selling stocks at losses is not necessarily a good thing to do, however a taxpayer can use excess losses over gains in the amount of $3,000 to offset other taxable income.
However, your clients must be aware of the Internal Revenue Service wash-sale rule when selling stocks.
The loss on a sale is not deductible if the same stock has been purchased within 30 days of its sale.
Your clients also need to be cautious of purchasing mutual fund shares at this time of year.
Should the fund distribute its 2008 dividends (short-term and/or long-term capital gains) shortly after the fund is purchased, they will have incurred a tax obligation for the whole year even though the shares were only owned for a short time.
The fund company can tell you when these distributions will be made. If your clients sell the shares before that date, they will not have to count the distributions as part of their taxable income.
Tax INsight is prepared by experts who are active members of the American Institute of Certified Public Accountants. Tax INsight appears on the web and in IN Daily every Tuesday. Comments are welcome at
IN_Editor@InvestmentNews.com.
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