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Year-End Tax Strategies Can Save You A Fortune, a "Guarding Your Wealth" exclusive.

(PRWEB) December 2 2003--Year-End Tax Strategies Can Save You A Fortune

Along with decking the halls and last minute Christmas shopping, there is still time to save you fortune in taxes next April. But you must act before December 31st, so read on.

Thanks to recent changes in the tax law, long-term capital gains from the sale of investments occurring after May 5th will be taxed at a 15% top tax rate, as opposed to 20%. If your are married filing joint and your taxable income is less than $56,800 then you will only have to pay 5% tax on your long-term capital gains.

These rates are the lowest theyve been in years. Depending on your situation, it may be worthwhile to sell investments in which you have large long-term capital gains. For example, lets assume you purchased $20,000 of an investment 10 years ago, it is worth $80,000 today and you are in the highest capital gains tax bracket. If you sell it before December 31st, you will have to pay capital gains tax on the $60,000 gain, but you will only owe $9,000 under the new rates as opposed to $12,000 under the old. That is a tax savings of 25%!

Then, when you reinvest whats left, your new cost basis becomes $71,000. Even if rates rise dramatically in the future, you will not have any additional capital gains taxes on that $71,000.

If you are in a higher income tax bracket and want to help out your children or grandchildren, you can gift the appreciated security to them. Most likely, the child or grandchild will only be in the 5% capital gains bracket, so they can then sell it and pay the capital gains tax at their lower 5% capital gains rate. If your gift will be more than $11,000, consult a professional first, as there may be some gifting issues involved.

Many people own investments that are worth less than they paid for them. If other investments possess greater opportunity or you expect to use that money in the near future, you can sell the losing investment before year-end and lock in your loss for tax purposes. Long-term capital losses offset long-term capital gains reducing the amount of capital gains taxes you will have to pay.

If you dont have any long-term capital gains to offset the loss, you can use $3,000 per year of the long-term capital loss to offset your other income. If your income is subject to the highest tax rates, this $3,000 offset will save you over $1,000 in taxes! Losses greater than the $3,000 limit can be carried over to future years and used then.

If you are over age 70 ½ and have money in an Individual Retirement Account (IRA), Uncle Sam requires you to take your Required Minimum Distribution (RMD). The mandatory amount you must take out of your IRA and pay taxes on each year after you turn 70 ½ is called your RMD.

Your RMD is taxed at ordinary income ratesjust like the money you earned when you were working. This can result in you paying taxes on a greater portion of your Social Security or putting you in a higher bracket overall. Thats why it is sometimes better to begin taking withdrawals from an IRA before you are 70 ½--it allows you greater control over the timing and amount of taxes you have to pay.

Heres the gotcha! If you forget to take your RMD before year-end, the IRS imposes a 50% penalty in addition to the income tax you would normally have to pay on your withdrawal. So if you are required to withdrawal $10,000 from your IRA before December 31st and forget to do so, Uncle Sam will impose a $5,000 penalty in addition to income tax you have to pay on the full $10,000. So if you are in a 27% tax bracket you will end up losing $7,700 of the $10,000 withdrawal to taxes! Dont rely on your financial institution to remind you, either. You bear the final responsibility for making sure you take this withdrawal on time.

To find out more about these and other year-end tax strategies that can save you a fortune send me an email or give me a call. Youll be glad you did!

Mr. Voudrie is a nationally syndicated columnist and President and CEO of Legacy Planning Group, Inc. in Johnson City, TN. He can be reached at jeff@guardingyourwealth.com or by calling 1-877-827-1463 toll-free.
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