KATHY MILLER

The end of the year is a good time to focus on tax planning and assess your financial status and goals. These strategies may help minimize your tax bill. 

Thinking about your taxes will almost always give you a headache, especially around the holidays. But staying on top of your finances as the year comes to a close can mean the difference between owing thousands of dollars in federal taxes and receiving a sizable check from the government in the spring.

Martin Scoll, Vice President of Life Event Services for Wells Fargo Advisors, says it is paramount to start preparing as early as possible. “Good tax preparation and planning starts on January 1,” he says. “Don’t wait until December to start dealing with your year-end planning. Reviewing your finances and giving some thought to your taxes in October and November will not only keep you ahead of the game — it will also likely save you money.”

Here are some tax-efficient strategies to consider as the end of the year approaches.

Review Your Investments 

Real Estate. For many people, a home is their best investment. Not only does a home typically rise in value over the long term — it also provides one of the best tax advantages out there, since the interest paid on a mortgage is generally deductible from your federal taxable income.

Stocks and Mutual Funds. Scoll says it is important to give your entire portfolio a review as the year comes to an end. If you have taken a loss from some stocks this year, it might be wise to sell them off before the end of December. Losses in equity markets can be used to offset any capital gains on stocks that have been realized during the year, and any excess losses can offset up to $3,000 of ordinary income, with any remainder carried forward for use in future years.

If you do decide to sell off stocks, make sure to do it before December 31, the last day of the year the stock market is open. Getting stuck holding stocks with losses will not decrease your tax bill.

Also, if you are expecting capital gain to be returned from a hedge fund in which you are invested, try to defer that event until the beginning of next year, unless you think the rates will be substantially higher next year

Retirement. If you are receiving distributions from your qualified plan, you can roll over the entire balance or distributions in excess of any RMD (required minimum distribution) into a traditional IRA. If you do this custodian to custodian or within 60 days (subject to limitations), you will not have to pay taxes on those distributions. Be sure to speak with Wells Fargo Advisors / Wells Fargo Advisors Financial Network before setting up the IRA account.

Give Away Money, Increase Your Deduction 

Often people donate money in the fourth quarter to increase their tax deductions. “Philanthropy is definitely something to consider,” says Scoll. “But there are limitations to how much you can give to charity and use the deduction.” You should talk to both your tax advisor and your Financial Advisor before embarking on a philanthropic giving plan.

There are also other kinds of gifts you can make to reduce taxes for long-term estate planning. First, you can give up to $13,000 per donor per recipient to family members and others for 2009 without triggering gift taxes. You can also give to your children’s or grandchildren’s education through 529 savings plans. You can gift $12,000 a year to a 529 plan tax-free — or better yet, take advantage of a law that allows you to give a single contribution, covering five years, to a 529 plan. That means you can give a maximum of $60,000 (five years of gifting) per donor per recipient tax-free in one year — and still be able to move that money between heirs’ education funds. 

Please consider the investment objectives, risks, charges and expenses carefully before investing in a 529 plan. The official statement, which contains this and other information, is available from us. Read it carefully before you invest. The availability of such tax or other benefits may be conditioned on meeting certain requirements. 

Additional Tax-Saving Tips 

In addition to reviewing your investments, there are other strategies that can help save you money come tax time.

Scoll believes it is always cost-effective to hire a good accountant. “Very often a good tax preparer is going to save you more money than he is going to cost you,” Scoll says. “It pays to have a smart professional help you prepare your taxes.”

While spending some time at year-end preparing your taxes is a smart idea, it’s also a good time to assess your financial status and goals for next year — so that when the end of next year rolls around, your investment and tax planning will already be off to a strong start.

Together, we can discuss: 

Making the necessary adjustments in your portfolio to help maximize your tax savings this year. 

How you should approach and adjust your IRA to avoid paying unnecessary taxes. 

Gifting money to family members or your children’s education fund to reduce your future estate taxes. 

Withdrawals are subject to ordinary income tax and may be subject to a federal 10% penalty if taken prior to age 59½.

Wells Fargo Advisors / Wells Fargo Advisors Financial Network does not provide legal or tax advice, but your Financial Advisor will be happy to work with your chosen legal and tax advisors to help you achieve your financial goals.

There is no guarantee any forward looking statements will be obtained. The opinions expressed are those of the author as of June 24, 2009 and are subject to change without notice. The material is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy.

This article is provided courtesy of Kathy Miller, a Managing Partner / Senior Financial Advisor with Miller & Associates Wealth Management LLC in Toppenish, WA.  Kathy Miller can be reached at 866-264-2834. Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member FINRA/SIPC, a registered broker-dealer and separate nonbank affiliate of Wells Fargo & Company.  Miller & Associates Wealth Management LLC is a separate entity from Wells Fargo Advisors Financial Network LLC.