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Year-End Tax Planning for Investments
The end of the year is a good time to take a look at your investment portfolio. Is it performing as you expected? Is it helping you to achieve the goals for which you are investing? Are you still comfortable with both the risk and the return?
As you perform this review, don’t forget to look at your investments from a tax perspective. While you should not base your decisions solely on tax issues, there might be things you can do to lighten your tax load.
For example, if you are planning to sell some investments that have unrealized losses, you might want to sell them before the end of the year, especially if you have gains from other investments. That way, the losses can help to offset the gains.
On the other hand, if you are planning to sell investments with gains, you might hold on to them until after the new year so those gains are not taxable until 2015.
Do you have mutual funds that make distributions toward the end of the year? Those distributions usually have tax consequences, though those tax consequences can vary. You should weigh the tax from the distribution with the taxes you might owe from the sale. If you plan to sell those funds, it might make sense to sell before the funds make their distributions. Or you may wish to sell the funds prior to the distribution and invest the proceeds in a similar fund without an upcoming distribution. Some people sell mutual funds to avoid distribution and repurchase the funds the next day.
Finally, if you are concerned about your tax burden, there are tax-advantaged investments you could add to your portfolio. Some of these include oil and gas partnerships, tax-exempt bonds, and REITs (Real Estate Investment Trusts). Also, life insurance products can provide certain tax advantages.
It is important to note that the tax advantages – or disadvantages – of investments are just part of the total picture; investments should not be chosen for their tax advantages alone. You should build a diversified investment portfolio that will help you meet your long-term goals. Obviously you don’t want to pay more in taxes than you have to. But you also don’t want to sacrifice diversification or significant growth potential in order to shave your tax bill.
Here at The Bensman Group, we are happy to talk with you about your investment portfolio and strategy, including the tax consequences of the investments you hold. You can contact us at firstname.lastname@example.org or 847-572-0808.