Tips for the tax-savvy investor

Tips for the tax-savvy investor

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Q: It seems that every year I always wait until the last minute to think about my taxes. I’m trying to be more proactive this year. Do you have any early preparation tips you can share so I can be ahead of the game for once?

A: First, let me say I’m impressed that you’re thinking about your taxes early — I wish more of us were! Here are a few things to consider that can help keep you ahead of the curve for your taxes. And to all of our PGN readers, I wish you a very happy and healthy holiday season.

Before you know it, the 2009 tax-filing deadline will be here again. Wouldn’t you rather be watching your favorite television show — or doing something else you enjoy — on the evening of April 15, 2010, instead of rushing through your tax forms to make a midnight postmark? By organizing your tax information now, you may be able to relax a bit in April.

Organize your documents

Start by organizing all the documents that pertain to your 2009 taxes. You’ll typically receive these types of documents by year-end or no later than Jan. 31 of the new year. This list includes much of the information the average taxpayer will need, although certain items may not apply to you.

Sources of income — W-2 forms from employers — Receipts from odd jobs, rental property or other income — Evidence of pension or disability payments — Proof of unemployment compensation if you collected it

Investment income — Documentation of your contribution to an Individual Retirement Account — you may be able to deduct your contribution to a Traditional IRA if you meet income thresholds — Form 1099 — which details yearly investment gains or losses — if you own mutual funds in taxable accounts — Year-end statements from brokerage accounts in which you hold stocks or bonds —Year-end statements from companies in which you own stock and receive dividends — Year-end bank statements that detail interest income

Potential deductions — Documentation of mortgage interest — Evidence of charitable contributions — Receipts for payments of college tuition and student loans (if you meet income thresholds) — Paperwork detailing educational expenses for yourself or a family member (if you meet income thresholds) — Documentation of job-hunting expenses — Evidence of unreimbursed business expenses, such as subscriptions to trade publications or membership in professional associations

Strategize to minimize your tax bite

Once you have gathered the necessary paperwork, start thinking about ways to reduce your 2010 tax bill. The tips below may help:

Make the most of tax-advantaged accounts

If you contribute to an employer-sponsored retirement plan, a traditional IRA or an annuity, remember that earnings on your contributions are allowed to grow tax-deferred until withdrawal. At that point, distributions will be taxable as income at then-current rates. With a Roth IRA, withdrawals are tax-free if you meet the requirements for a qualified distribution.* Keep in mind, however, that early withdrawals from a qualified retirement plan or annuity may be subject to a 10-percent penalty tax.

Offset investment gains with losses

At times, you may be able to use losses in a taxable investment portfolio to help offset capital gains you realized by selling assets at a profit. For example, if you sell investments that have lost money, you may opt to deduct up to $3,000 in investment losses from that year’s tax return. Additional losses can be carried forward and used to offset future capital gains.

Understand short- and long-term capital gains

If you have an investment and hold it for at least one year before selling, you’ll pay a maximum federal tax of 15 percent on capital gains. Keep it for less than one year and you’ll pay regular income taxes — up to 35 percent.

Finally, keep in mind that tax rules are changing constantly and investments are not the only aspect of your life that deserves special attention come tax time. For more ideas on how to reduce taxes in 2009 and 2010, consider speaking with a tax professional.

* Restrictions, penalties and taxes may apply. Unless certain criteria are met, Roth IRA owners must be 59-and-a-half or older and have held the IRAs for five years before tax-free withdrawals are permitted.

Jeremy Gussick is a financial consultant with LPL Financial, the nation’s largest independent wealth management firm.** Jeremy specializes in the financial planning needs of the LGBT community. He is active with several LGBT organizations in the Philadelphia region, including the Delaware Valley Legacy Fund, the Greater Philadelphia Professional Network and the Independence Business Alliance. OutMoney appears monthly. If you have a question for Jeremy, you can contact him at This email address is being protected from spambots. You need JavaScript enabled to view it. .

This article was prepared with the assistance of Standard & Poor’s Financial Communications and is not intended to provide specific investment advice or recommendations for any individual. Consult your financial advisor or Jeremy Gussick if you have any questions. LPL Financial, Member FINRA/SIPC. **Based on total revenues, as reported in Financial Planning Magazine, June 1996-2009.