Planning for the New Tax Laws

Every new year comes with its own set of tax law changes, and this year is no different. It is important to understand the changes made to the tax laws, and to know how those laws will affect your own financial situation.

The end of the year is always a good time to clean up your stock portfolio. As you review the stocks in your portfolio, it is important to assess them for tax purposes. If you have substantial capital gains, you may want to consider selling some of the losers in your portfolio in order to offset those gains with losses from losing stocks. After you have used those losses to offset capital gains, you are still able to offset up to $3,000 in income with additional losses.

Of course, it is always better to have capital gains than losses, and the good news is that the maximum tax rate for long term capital gains is a mere 15%. Depending on your marginal tax rate, the tax bite for gains could be even less.

When planning the purchase and sale of stocks and mutual funds, remember that it is the trade date, not the settlement date, that counts for purposes of taxes. As the year winds down it is important to plan your portfolio moves accordingly, and do it in a timely fashion.

Smart taxpayers may want to use the convenience of credit cards for a tax advantage today. Year end deductible expenses such as business expenses, medical bills, charitable contributions and other items can be charged to a credit card. You get the deduction now, but the credit card bill is not due until the new year has begun. Of course, this strategy only works if you are diligent about paying the credit card off the minute it arrives.

Business owners may want to make those large ticket purchases now, before the end of the year. Making planned purchases now allows business owners to take advantage of liberal depreciation rules. These rules allow business owners to take an immediate deduction on certain business purchases.

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