Start Your Tax Planning Early

If you start your tax planning early you’ll  have plenty of time to work on strategies to lower your tax “bite” for the coming year.

  1. Review your investments
    If you have taxable income from investments, consider investments that are tax-deferred (retirement plans and deferred annuities) or tax-free (municipal bonds, Roth IRAs, 529 education plans).
  2.  Match gains with losses
    If you have gains from selling assets this year,  review your portfolio to harvest losses to offset the profits. You can mix and match, offsetting real estate gains with stock market losses and vice versa.
  1. Estimate your taxes:
    Many people base estimated tax payments on prior year taxes, but that may not be accurate. If you sold assets at a gain in 2011, your taxes may be lower in 2012. Conversely, if this year business is booming, your tax may be higher. Adjust estimates before September 15 so that you won’t get a big surprise come next April.  
  1. Rethink charity
    Give smarter by donating highly-appreciated assets to charity, avoiding the tax on the gain while you benefit the charity. Or if you are retired with significant IRA assets, in 2012 you can distribute up to $100,000 directly to charities without paying income tax on the distribution.
  1. Fund your retirement year-round:
    The sooner you invest your funds, the longer they have to grow, so don’t wait until next April to fund your IRA or other retirement accounts.  If you are in business for yourself, consider a Single 401(k) plan,defined benefit plan or SEP to stash funds you won’t need until retirement.    
  1. Watch that AMT:
    Congress enacted the Alternative Minimum Tax in 1969 as a tax against the wealthy, but because of inflation each year it catches more and more middle-income taxpayers by surprise.  This year AMT is forecasted to hit 23.4 million people. To  figure out if you are one of them, the Internal Revenue Service has an online AMT assistant to help you. Go to and click on Online Tools.

If you aren’t comfortable tackling these issues yourself, find a good tax professional or financial planner who can help you develop an action plan. Tax planning, saving strategies and proper investment management are three pillars of building and preserving your wealth.

A few hours of planning this fall can help you enjoy the rest of the year and build assets for your future.

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