2010 Q4 | Year-End Tax Planning for Mutual Funds

2010 Q4 | Year-End Tax Planning for Mutual Funds

If you invest in mutual funds, proceed cautiously at year-end. At this time of year, funds may distribute any net capital gains for 2010 to their shareholders. These distributions are taxable to investors (unless the fund is held in a tax-favored retirement account), and the share price typically drops to reflect the distribution. Example 1: Caitlin Carter invests $10,000 in Mutual Fund ABC in early December 2010. She acquires 500 shares at $20 apiece. One week later, ABC makes a $2-pershare capital gain distribution, and the share price drops to $18. Caitlin owes tax on a $1,000 capital gain distribution ($2 per share x 500 shares)-even though the distribution is essentially a return of her own money. Therefore, if you

2010 Q4 | Year-End Tax Planning for IRAs

2010 Q4 | Year-End Tax Planning for IRAs

Through 2009, you could convert a traditional IRA to a Roth IRA only if your modified adjusted gross income (for the year was no greater than $100,000 on a single or joint tax return. The $100,000 cap came off in January 2010. Under current law, this change is permanent. Therefore, high-income taxpayers can convert traditional IRAs to Roth IRAs in 2010, 2011, 2012, and so on. For taxpayers who would like to convert their traditional IRA to a Roth IRA, year-end 2010 presents multiple opportunities. Example 1: Wendy Ames has $200,000 in her traditional IRA that contains only pretax dollars. Wendy would like to invest in a Roth IRA because these accounts may permit tax-free withdrawals in the future, and

2010 Q4 | Year-End Tax Planning for Itemized Deductions

2010 Q4 | Year-End Tax Planning for Itemized Deductions

When you fill out your tax return for 2010, you’ll have to choose whether to itemize deductions or claim a standard deduction. If you itemize, you’ll deduct certain amounts you spent this year on charitable donations, mortgage interest, and so on. You may, instead, claim a standard deduction. For 2010, the standard deduction is $11,400 for married couples filing a joint return; 5,700 for singles and married individuals filing separately; and $8,400 for heads of household. Taxpayers who are over age 65 receive an additional standard deduction: $1,400 for single taxpayers and $1,100 apiece for married taxpayers in 2010. Similar deductions are available to the blind. If you qualify on both counts, you’ll get two deductions. Possible tax break For