Here’s a recipe for holiday cheer: Sweeten your year-end portfolio update with tax savings. Just remember to start planning now to achieve the best result.
Here are strategies that can help:
- Wash sales. Thinking of selling a security before December 31 to take advantage of a capital loss? To make sure the loss is deductible, refrain from buying a substantially identical security during the 61-day period that begins 30 days before you sell and ends 30 days after.
- Worthless stocks. For capital loss purposes, securities with no value are treated as if you sold them on the last day of the year. Your loss is generally the same as your cost.
If you want to deduct worthless securities on your 2007 return, you’ll need to prove the security became worthless during the year and that it truly has no value. Not sure you can meet those requirements? Selling before year-end may be a better option.
- Stock donations. Giving appreciated stock to charity lets you avoid capital gains tax and claim a charitable deduction.
In order to deduct the donation on your 2007 return, the gift must be complete. For certificates you endorse and present directly, the date of mailing or other delivery is considered the date of the gift. When your broker or the issuing company handles the transaction, the gift is complete when the stock is titled to the charity.
Tax law changes that will take effect in 2008, such as revised kiddie tax rules and a zero percent capital gains tax rate on certain asset sales, may also affect your year-end investment planning. Please call us for more guidance in your year-end tax review.