I don’t know about you, but I am working with my tax advisor making sure that I don’t miss a step when it comes to paying my 2010 taxes. Through working with a professional you can avoid overpaying taxes and take advantage of opportunities to actually put away instead of throw away your money.
While the economy may be getting better many of us are still trying to hold onto every cent we can in an effort to be wiser with our incomes and investments moving into the future. When handling your taxes this go-around there are a few areas not to forget about – Julie Stone, CIMA®, Vice-President and Senior Investment Management Consultant with the Denver office of Morgan Stanley Smith Barney LLC, member SIPC, assists individuals with their investments after they handle their taxes but suggests the following strategies to put yourself in the best position to continue investing.
- Capital Gains and Losses – “With nearly every area of individual taxes in limbo right now, the typical considerations –the ones that guide using your current and past gains and losses to help in minimizing your current and future tax exposure – become magnified.” Stone recommends that you ask your tax professional to run a preliminary analysis of your tax year. “This way they can identify any carried over losses or gains and advise you as to whether any potential losses on depreciated securities would be more valuable in now or in the future years.”
- Portfolio Allocation – “The volatile financial markets may have thrown your portfolio allocation for a loop. Year-end is a good time to check you asset allocation and – just as importantly – to reassess your long and short term goals considering the changes that have taken place in the financial markets and in your own life.” By keeping a close eye on your goals and adjusting your portfolio every year you can prevent yourself from getting off track.
- Retirement – If you’re a high-income investor now may be the time to consider a ROTH IRA for your retirement assets; this type of IRA allows you to accrue retirement funds tax free over the course of your hard working years. Stone says to, “Ask your Financial Advisor to prepare a Roth Conversion Analysis in order to help you decide if it’s the right move for you. This report with show you the after-tax potential future value of your IRA balance, comparing the outcome of your current Traditional IRA with that of a ROTH IRA.”
- Gifting to Individuals and Charities – According to many financial analysts, following the 2010 tax year it’s likely that estate taxes are expected to be higher than they have been for the past few years. For those of you considering leaving real estate to your children, now might be the best time to avoid them having to pay higher tax rates on it. When asked about gifting tax free Stone shared that, “you can gift up to $13,000 ($26,000 for a married couple) free of gift tax to an individual or non charitable entity. You can accelerate your gifting in the current year; for instance, by contributing to a 529 college savings plan you can remove up to $130,000 (jointly) from your taxable estate.”
- Tax Credits – Did you know that if you made energy-saving changes to your home or purchased a new home by April 30, 2010, it’s possible you can claim a tax credit that will reduce your tax liability? Stone recommends that in order to guarantee you take full advantage of this possible opportunity that you go over all your home improvement receipts with your advisor to see if any of them qualify for a credit.
These are just a few of the financial areas that you should be considering and discussing with your financial advisor. With the unpredictability of our financial markets now and the years to come it’s key to be aware of every tax credit and tax deductable strategy you can benefit from in order to keep to your financial goals and to make sure that you’re holding onto or investing as much of your personal income and gains as possible.
Julie Stone, CIMA® is a Financial Advisor with the Global Wealth Management Division of Morgan Stanley Smith Barney in Denver. She has been building solid portfolios for over 22 years.
The information in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
Morgan Stanley Smith Barney Financial Advisors do not provide tax or legal advice. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are urged to consult their personal tax or legal advisors to understand the tax and related consequences of any actions or investments described herein.