Who can believe it is almost October? It seems just last week I was planning the summer holidays. The change in seasons always leads me to get into planning mode. This inevitably and fortunately usually involves some financial responsibilities related to investing.
Income taxes fall into the financial responsibilities category. A strategic tax plan generates more after tax wealth which in turn allows you to give more to the causes in which you believe. What does a year end tax plan mean for an individual investor?
First update your spreadsheet for projected income for this tax year. This should include both salary income and gains or losses from investments in taxable accounts since these are usually treated differently for tax purposes. The spreadsheet will give you an idea of whether you even need to think about generating a loss from your securities. I suggest you review this with your CPA since the rules can be tricky and change often.
Year end is a time when most institutional fund managers sell losing positions to take advantage of tax strategies. If you invest yourself then consider getting “ahead of the crowd” by selling your losing positions before the big money does. If you want to buy the security back after the 30 day required minimum to generate a loss then your repurchase time could be when everyone else is selling. Yes the stock market is in a strong uptrend but at least create your plan. You can then implement it into your investing activities without the rush of year end.
If you use a financial advisor let her know the amount of tax loss you are seeking in your account. This will give her plenty of time to implement the transactions. Have a discussion with her about how she wants to implement your plan. You may want to email this communication so you can just forward it to your CPA to keep her in the loop.
If this is all Greek just call your CPA next week and ask to meet with her to discuss any year end tax planning strategies recommends for you. You could also ask her to coordinate the recommendations with your financial advisor. This is the simplest strategy and sometimes life calls for simple with no apologies necessary.
Now is the time to plan your 2009 year end tax strategies. This alleviates tax loss selling as you pop the cork off the champaign for the New Year’s Eve party which could certainly spoil the mood. It also lays the groundwork for improved financial results and better tax strategizing which over time results in greater wealth accumulation.