Smart Yearend Tax Moves

Written by Bob Morrison.

Ben Franklin said that the only certain things in life are death and taxes.

But when it comes to taxes, there's nothing inevitable about how much you should pay. Savvy investors know that a proactive approach can translate into a significantly lighter tax bill.

The end of the year is a key time to take the initiative in trimming your tax liabilities. After Dec. 31, the moves you can make to alleviate your 2011 tax burden will be limited—so now's a good time to review your situation with me or with another tax professional.

An example of how much tax planning can matters took place this week. It involved Downing Street clients who needed to be contributing more to their retirement savings in order to meet their goals. We suggested increasing the couple's contribution by $6,000 per year. I recommended jump-starting things by contributing $6,000 to a tax-deferred account.

The contribution not only helped the couple get back on track toward meeting their retirement goals, but it enabled them to reduce their 2011 federal and state tax liability by $1,800, In effect, the couple's $6,000 retirement-savings contribution cost them just $4,200.

The end of the year is also open enrollment season for healthcare options at many companies. By enrolling in a flexible spending account program, you can look forward to saving 30 cents on the dollar in 2012 for everything from doctor-visit deductibles to braces.

Back to investment accounts: If certain investments with your taxable accounts have declined significantly this year, you can capitalize on that fact by writing off the losses against your income.

Other smart moves include making charitable contributions before year-end to lessen your 2011 tax liability, or perhaps making an extra mortgage payment in December in order to get 13 months of mortgage-interest deductions for the year.

Many of us have the fatalistic attitude that taxes are just something that simply happen to us, whether we like it or not. But if old Ben Franklin were alive today, I bet he'd be meeting with his CPA, exploring ways to whittle away at his tax bill.

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