End of Year Investment Ideas


As we enter the final 3 months of the tax year, here are a couple of strategies to consider with your non-retirement investment portfolio.

0% rate on long-term capital gains and dividends. If your income other than gains and dividends is in the 10% or 15% bracket, profits on sales of assets owned for over a year and dividends are tax free until they push you into the 25% bracket. That bracket starts at $72,500 of taxable income for couples and $36,250 for singles. The balance of your long-term gains and dividends is taxed at 15% or possibly 20%.

Sell poor performers. Capital losses offset your gains, plus up to $3,000 of other income. Any excess losses are carried over to next year. Taking losses to offset gains can also reduce the tax bite of the potential 3.8% Medicare surtax.

Use capital loss carry-forwards. Any net gains you have this year…up to the carryover amount…aren’t taxed at all. If you have loss carry-forwards, sell some of your winners and reap the profit tax free.

Be careful if you buy a mutual fund late in the year. If a mutual fund pays a dividend in 2013 after your purchase, you owe tax on the payout this year. Financially, you are not better off because the fund’s share price falls by a corresponding amount. In effect, you are prepaying your tax to IRS. Buy the shares after the dividend’s record date. The mutual fund can tell you if and when it plans to pay a dividend.