2010 Q4 | Year-End Tax Planning for Investors

2010 Q4 | Year-End Tax Planning for Investors

For the past two years, investors have experienced extraordinarily tumultuous times. From late 2008 through early 2009, stock markets in the United States and around the world have fallen sharply. The S&P 500 Index, a leading benchmark for the U.S. stock market, lost about half of its value, for example. As the winter of 2009 came to a close, stocks rebounded. For the remainder of last year and into early 2010, stocks enjoyed one of the strongest recoveries since the 1930s. Investors who held on recouped some of their losses, and those who rimed the market successfully had sharp gains. During the second quarter of 10, however, stocks dived again. Debt woes in Europe and sluggish employment growth in the

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