5 End-of-Year Tax Preparation Tips

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The taxation of investment gains can be a confusing and frustrating exercise for many individuals. This release offers 5 tips for individuals to take now to help reduce their tax liability for 2008.

The goal of tax planning is to arrange your investments in such a way as to minimize your tax liability

The taxation of investment gains can be a confusing and frustrating exercise for many individuals. Even moderately complex investment portfolios may require expert tax advice, says Cameron Bell, President and Founder of Wealth Management Institute, a comprehensive financial planning and money management firm located in Gaithersburg, Maryland.

"The goal of tax planning is to arrange your investments in such a way as to minimize your tax liability," said Bell. "However, the best options for doing so vary for each investor."

Cameron Bell advises that, as the year draws to a close, individuals keep the following five tips in mind as they assess their 2008 tax liabilities:

Don't wait until January to start planning your taxes
January is too late to begin planning investment strategies to limit tax liability. Right now - before the end of the year - is the perfect time to evaluate your options. Keep in mind that decisions you make today will impact your tax liability not only for 2008, but for future years as well. Involving an investment professional will help you make the right decisions for your future.

Talk to your investment advisor before your CPA
Your accountant determines estimated tax payments for the coming year by evaluating your previous year's tax returns. Without current capital gains information, those estimates may not be accurate. Instead, begin your tax planning by talking to your investment advisor, who will evaluate your expected tax liability and suggest investment strategies.

Have you met your required minimum distribution?
Many retirement plans require a minimum annual distribution of money out of the plan. These withdrawals are tax-free provided you're of retirement age - but only if you distribute at least the stated minimum amount. Your plan provider considers this distribution income whether it's removed from the plan or not.

Here's the key: This minimum distribution amount is considered income by your plan provider whether it's distributed or not. The difference between this minimum distribution figure and the actual amount removed is taxed as personal income at a rate of up to 50%, depending on your tax bracket, so plan retirement distributions carefully.

Harvest tax losses before capital gains from are paid
A lot of investments this year will be down substantially. Some of those investments will pay out capital gains. If you own one of those investments in a non-retirement account, you may be in a position where you pay tax on an investment that has gone down in value in 2008. So be sure to review all your investments for estimated capital gains (this information should be public available). It may make sense to book the loss before the gain is distributed.

Work around the AMT
Individuals who reap substantial capital gains income often find themselves elevated to a higher tax bracket than they had anticipated. This investment income can also have another "benefit" - triggering the alternative minimum tax (AMT). Briefly, the AMT disallows many deductions and exemptions, ensuring that high-income households will have a minimum tax liability.

The AMT can cause problems in several different ways. Since it was developed in the 1970's and is not indexed for inflation, an increasing number of households now qualify for it. With a tax rate of 26% to 28%, the AMT can result in a serious hit on after-tax income. Perhaps the biggest problem is that individuals often don't recognize they're subject to the AMT until they've computed their taxes. Talk about a nasty surprise!

One way to work around the AMT is to shift investments from taxable to tax-deferred accounts. Income realized from these investments will be subject to the capital-gains tax rate of 15% - far better than the AMT. As usual, the nature of your investments will depend on several factors, including your tolerance for risk and the amount of money you need to shield.

The end of the year is an ideal time to review your investment portfolio and get a handle on your potential tax liability. An experienced, customer-focused financial planner can be a valuable asset as you weigh investment strategies for this year and many years to come.

About the Wealth Management Institute
Located in Gaithersburg, Maryland, Wealth Management Institute is a comprehensive financial planning and money management firm whose mission is to help clients realize their life goals through customized investment strategies. Led by Certified Financial Planner Cameron Bell, Wealth Management Institute has mastered a small but diverse array of investment strategies that provide clients with a strategic and effective approach to wealth management that increases opportunity while minimizing risk. Services include comprehensive financial planning, money management and retirement planning for individuals, as well as business plan design and contribution planning services for businesses. Cameron Bell may be reached at (301) 926-7276 or via e-mail at Cameron.Bell @ Wealthmanagementpro.com

Securities and investment advisory services offered through FSC Securities Corporation, Member FINRA/SIPC and a registered investment adviser. Branch address is 702 Russell Ave., Suite 405; Gaithersburg, MD 20877. 301.926.7276. Additional advisory services offered through Wealth Management Institute, Ltd., a registered investment advisor not affiliated with FSC Securities Corporation.

Cameron Bell is not a tax planning professional. This is for informational purposes only and should not be considered specific advice for any individual. Please seek advice from a qualified professional.


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C. Cameron Bell, MAS, CFP
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