Top Five Tax Ideas to Think About Now

Harvest capital gains and losses. Do it now while we have a 15% long-term capital gains rate. Depending on your personal tax situation, it may make sense to put some money into tax-deferred investments such as annuities to defer taxes, especially for when rates go higher.

The federal estate tax exclusion goes up January 1 so you may need to revisit your estate plan documents such as wills and trusts. If you don’t have a will, make it a New Year’s Resolution to get one. These do not need to be done by December 31st but tax laws are changing every year so it’s always a good time to review these documents. In addition, you may need to review your power of attorney or healthcare power.

Start planning charitable gifts now – if you want a Charitable Remainder Trust, for example, it will take time to draft. You will need to get this done rather quickly if you want to take your deduction this year. Otherwise, just give cash, check, or personal items to a charity before the year ends.

If you reach the magic age 70 ½ this year, make sure you take your required minimum distribution (RMD) from your IRA. If you don’t, there is a hefty penalty of 50% of the shortfall. Fortunately the IRS gives first time RMD takers until April 1, 2006 but then you must take two distributions in the next tax year. Many custodians will put this on autopilot for you so you get your distribution every year going forward.

As always, make sure you get the maximum contribution you can into your company sponsored retirement plan. This will not only reduce your current income tax bill but the money will grow tax-deferred until withdrawn. If your company matches your contribution in any way, it’s imperative to at least contribute enough to get the full match. Lastly, 100% of your hard earned contributions go to work for you the day they are invested as opposed to giving a portion to Uncle Sam and letting the rest go to work for you.

Whether planning makes a difference of $1 or $10,000, we work too hard for our money to let any of it go to unnecessary taxes. A little planning now can certainly save money, time and energy later.