Tax-saving Steps to Consider for Your Portfolio

It may seem early to be thinking about spring, but if you’d like to reduce next April’s tax bill, you have until Dec. 31, 2009, to complete many tax-saving steps. The following considerations may be appropriate for you:

• Discuss 2010 IRA conversion rule changes and how they may apply to you. For one year beginning Jan. 1, 2010, investors wishing to convert a traditional IRA to a Roth IRA are no longer subject to the $100,000 modified adjusted gross income (MAGI) limit. Now may be an opportunity to consolidate your retirement accounts. Meet with your financial advisor for an IRA conversion analysis before year-end to help see if this opportunity is right for you.
• Make a 529 college savings plan year-end gift. The annual $13,000 gift limit or the special five-year accelerated gifting provision ($65,000 in one year, per contributor) would make a significant impact on the amount needed to save for future education expenses. Depending on your state’s plan, contributors may be eligible for a state tax deduction or credit.
• Make a charitable donation. You may donate cash, shares of stock held longer than 12 months or an IRA distribution. Regardless of how you support a charity, remember to keep all receipts in case you plan to deduct your donations. It’s also important to ensure that the charity is qualified for tax purposes. Visit www.irs.gov for more information.
• Offset capital gains with losses. Selling an investment for less than what you paid (adjusted for splits, etc.) creates a capital loss that you can use to offset capital gains from other investments. You can subtract up to $3,000 in losses from income and carry the excess into future years.
• Sell your most advantageous positions. An equity holding that you have added to over time may have more than one cost basis (how much you paid for the shares). When deciding which shares to sell, consider whether cost basis will affect the amount of gain or loss and the sale’s potential tax rate.

Before making any tax-related decisions, always consider your overall financial situation, not just the taxes. Contact your tax professional, who can work with your financial advisor to help you achieve your long-term financial goals.

Edward Jones, its employees and financial advisors do not offer tax or legal advice. Please consult with a qualified tax or legal advisor about your particular situation.