Don't
think just because you've filed your income tax return
that you can forget about taxes until next year. The
real fun starts now when you can look at your return
to make decisions about tax moves in 2008.
When
filing returns, usually there are a few surprises,
both good and bad. For example, you had excessive
losses with stock sales. If that amount is more than
$3,000, you had to carry over the rest of the losses
to next year. That means if you make gains this year
they can be offset by those 2007 losses. So you might
look for opportunities to sell winners and reduce the
tax bite.
For
those in higher tax brackets, a surprise might have
been too many distributions from mutual funds, such as
short-term gains that are counted as ordinary income.
To reduce those payouts consider an Exchange Traded
Fund equivalent to that fund. Just be careful with
ETFs because they carry a stock trading fee and are
not efficient for frequent traders or contributors.
But lump-sum contributors can reap lower expense fees
in many cases.
For
those in lower tax brackets, taxes may have been even
lower if contributions were made to retirement plans
last year. By taking advantage of the retirement
savers credit, not only are retirement funds
benefitting for the future but taxes are lower in the
present. Starting contributions to IRAs or 401(k)s now
can lower your taxes for next year.
To
manage investment gains and losses more tax
efficiently, consider putting retirement funds in a
non-retirement account, such as a brokerage account or
individual mutual fund account. Just because the money
is for retirement doesn't mean it needs to be in a
retirement account. By having this individual account,
you can receive tax benefits now while saving for the
future.
For
example, buying a stock in a regular brokerage account
in January and finding it down 20 percent in December
allows you to sell it for the capital loss for the
current tax year. You can either move the money to
other investments as part of rebalancing or wait 30
days and re-invest. If the money is put back within 30
days it is subject to the IRS's wash-sale rules, which
means the loss is not allowed.
Finally,
if you found yourself bumped into a higher tax
bracket, you might want to consider municipal bonds,
which are exempt from federal taxes and often from
state taxes too.