Tax Time Already?

There are tax time strategies you can consider now.

November is the month, as we all know, when the department stores and the television channels begin overwhelming us with all their Christmas advertising, long before we’ve even reached Thanksgiving. So it may seem too early to start your year-end tax planning, but now is the time to start thinking about it.

Actually, tax planning is the kind of thing you should have in the back of your mind all year, but as long as you decide now what you need to do, you’ll have all of December to take care of executing your strategy. But do not procrastinate and wait until the end of the year. Some tactics with regard to incentive stock options, charitable contributions and other strategies may take more time to fully implement.

There are many tax strategies that can be considered. Here are four to think about as we head toward the end of 2005.

Timely Tactics

Think ahead about your capital gains.

First of all, the classic advice still applies: To reduce your capital gains liability, start thinking about selling your losers. Any stocks that have declined in value this year can be sold, and the loss can be used to offset your gains up to a maximum of $3,000 in most cases. Any excess loss can still be used in future years. On the other side of the ledger, if you have some winners you’re thinking about selling, remember that you need to hold them for more than a year to get the more favorable long-term capital gains treatment.

If you are thinking about retirement—or expect for some other reason to be in a lower tax bracket next year—it may make sense to prepay some of your deductible expenses this year or to shift income into the following year. For example, you can pay your January 1 home mortgage payment in December rather than waiting until the new year. Conversely, if you expect to be in a higher tax bracket next year, you may want to shift deductible expenses to next year or to shift some income forward into the current year.

The end of the year is also a common time to make deductible charitable contributions. One option to think about is donating stock that has appreciated in value. In general, you get to deduct the full, appreciated value of the stock, but you can avoid paying capital gains taxes on the increase in value.

And then there’s the great bogeyman of the modern tax-planning era—the alternative minimum tax. The AMT has been affecting more and more taxpayers, and playing more of a role in tax-planning decisions. One estimate expects more than 16 million taxpayers to pay the AMT in 2005, up from 3.3 million in 2004. Basically, what the AMT does is force you to pay a minimum of 26 percent on your taxable income for AMT purposes, irrespective of exemptions or deductions.

But there are some defensive measures you can take against the AMT. If you tend to have great fluctuations in income from year to year, you may be able to shift some AMT-triggering items from an AMT year to a non-AMT year. There are also ways to qualify for a tax credit this year if you paid the AMT last year, particularly if you exercised some incentive stock options. Ask your tax preparer if you qualify to fill out IRS Form 8801.

The Total Approach

Your wealth manager may be able to help minimize your tax consequences, now and in the future.

Everyone’s tax situation is unique. Many people will be able to take advantage of these tax strategies, but they could benefit even more from a holistic approach to tax and investment planning, one that affects not just this year but many years to come. For example, many of our clients have implemented plans to move from a concentrated portfolio to one that emphasizes diversification and proper asset allocation. Others have restructured their portfolios to take greater advantage of taxable and tax-deferred accounts. In both cases, the goal is to minimize the tax consequences both now and in the future, while seeking to protect the client’s goals in the long term.

The bottom line is that effective relationships with your wealth manager and your accountant may help you minimize your taxes while strengthening your portfolio and keeping your financial assets aligned with your overall financial goals. Would you like to learn more about how Bernhardt Wealth Management can help you plan your financial future—not just at tax time, but the whole year round? Contact Bernhardt Wealth Management at, or give us a call at (703) 356-4380. You can also email me directly at

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