Do I Need To Make Any Last Minute Year-End Tax Moves?

Yikes, I’m cutting things close this year. Time to see if there are any last-minute things I need to do with the last two business days before 2008.

Selling Losing Stocks or Mutual Funds
If you have some investments that are currently in the negative and you don’t want anymore, you might consider selling them and taking the loss. This is because you can deduct the loss against your other capital gains, or even reduce your taxable ordinary income (up to $3,000 each year). In general, people like doing this. You can’t buy the same “substantially identical” investment again for 30 days though, as that would break the IRS wash sale rule.

If you have some index funds that have high unrealized losses, you might even sell them and buy a similar fund at the same time. Again, the general idea here is to take advantage of the fact that the IRS tax capital gains and capital losses differently. Losses can “save” you money at your ordinary tax rate (up to 35%), while long-term capital gains are capped at 15%. More information and an example of this technique here.

I don’t have anything that I’m looking to sell, as most of my investments are in tax-deferred accounts. I have a $31 loss right now in BRSIX, but that’s not worth the potential commission of buying a similar fund.

Make A Tax-Deductible Donation
If you mail in a donation (including a check or credit card info), it must be postmarked by December 31, 2007. Be sure to get a receipt! Usually the easiest thing is to just charge it on your credit card in time. That way you have your credit card statement as backup, and you’ll also earn some cashback rewards while you’re at it. This is the first year we might actually get to itemize our deductions, so that’s kind of nice.

On a side note, all of my Kiva loans are still doing fine, and one was even paid back early (the somewhat-controversial one from apparently-rich Ukraine!).

Using Up Flexible Spending Account funds
Our usual routine is to spend the rest of our FSA money on contact lenses solution, eyeglasses, Benadryl, and Aleve at Costco. From last year, here is a big list of things that qualify for Flexible Spending Account reimbursements. If you don’t have any immediate needs, Mapgirl had a good suggestion that you can complete your first aid/emergency kit with things like gauze that don’t expire.

Comments

  1. Are Kiva’s loans tax deductible? Was reading on Kiva’s FAQ Tax section, donations to Kiva organization are deductible but wasn’t sure about loans to individuals.

  2. are the Kiva loans tax deductible on the year you loan them out? And taxable when the repayment is received? Thanks Jon.

  3. I don’t like the idea of selling loser funds and exchanging for similar funds. Here is the deal, the loss is still loss and if you carry over to realize loss in the next year, the actual loss is only the interest rate. However, your holding period is renewed and you can not sell it within a year to qualify the long-term gains (if any). This means you can not do it every year. Am I correct?

  4. Here’s my situation. I’ve got close to $5000 in long term cap gains this year. I’ve also got several loser stocks I can sell for about a $3000 loss. If I take capital losses of $3000, can I count them against income(28%) instead of long term cap gains(20%)? Or do you have to use up all your cap gains first and then apply to income?

  5. just a little last minute tax move never hurt anyone. At least legal tax move.

  6. Well, I always pay January’s mortgage now in December (and now I have to, to just get the normal 12 months’ worth of deductions).

    I know you have time for IRAs and stuff (until tax day, right?), but how about for contributions to 529s? Because whatever you contribute now, you can take a state tax deduction. In my state, that’s like 6%.

  7. if u need to use up ur FSA…..buy stuff from Target with a credit card and then return it. :)

  8. Sheesh…tell me about the $3000 taxable ordinary income deduction – I’m still carrying over and deducting my losses from my 2000 dot com fiasco…almost all used up though finally! :)
    -Raymond

  9. Thanks for the link! As a rule, I try not to hold any mutual funds with any substantial unrealized losses, that seems kind of counterproductive. *winky*

  10. Speaking of FSAs and babies, my first child was born a few days after our end of year, which is June for my company. The last day of June we went on a $2000 shopping spree. Years supply of various diaper creams, a $150 humidifier, infant medicines, top of the line thermometers. Our baby was pampered. Did manage to also fit in a couple pair of prescription sunglasses as well.

  11. Kiva:

    Since you intend to get the Kiva loan principal back (you can either lend it out again or withdraw it), they aren’t a donation really. But from their FAQ:

    “If my loan defaults, can I then claim it as a tax-deductible donation?

    No, because it was intended as a loan, not a donation. However you can claim it as a capital loss.”

    If you want, donations to Kiva.org’s operational expenses are tax-deductible.

  12. Mimi – I don’t know about all states, but for Oregon’s 529 tax deduction you have until April 15th or whenever you file your tax return. I can only assume most other states are the same.

  13. Hey, I just wanted to say that your advice for end of the year tax moves is great. It reminded me that I need to drain my Health Savings account before the end of the year and pick up some new contacts. I also wanted to let you know that I started my own personal finance website as well. Please stop by and check it out if you have time. Thanks.

  14. Didnt know one could go to store like Target and get a gift card for remaining money for FSA.
    Tapan

  15. Don’t forget: Long term capital gains rates fall to 0% for those in the 10 or 15% tax bracket in 2008 (approx 31k for singles, and 63k for married folks). For those people who derive most of their income from capital gains and/or qualified dividends (which are currently taxed at the lower CG rates) they should hold off selling any appreciated long term holdings till the ball drops in Times square. Of course those persons who have other income (such as a job), or who’s combined income put them in the 25% tax bracket or higher will continue to pay the 15% rate on capital gains over those limits. That rate is the same in 08 as it was in 07.

  16. Not all state’s 529′s give you until April 15th for a deduction. In Maryland, for example, I know it must be postmarked by December 31st.

    Make sure you check the rules for your state, since they are all likely different.

  17. SavingEverything says:

    Nice reminder: There was an article “How investors can avoid a taxing situation” online from October or November that describes the unwelcome of capital gains distributions. It even states that in 2007, some mutual funds may distribute between 20-30% of the net asset value. That can be huge tax liability; and may be reduced if you have losses and just take the loss. If the mutual fund is in a tax-sheltered account, then you have no need. WOW, MoneyBookBlue, you are still carrying-forward $3k dotcom-sell losses from end of 2000?

  18. Jon,

    I don’t see your question being answered yet. In my understanding, the capital loss will first offset any gains. So they will apply against 20% first. If you still have any losses left over, you can apply $3000 per year (and carry over indefinitely until you run out of the losses) to offset your ordinary income.

    So in your situation, all the losses will be applied to minimize the gains (and you will pay tax on $2000 of the capital gains).

    I am not a tax expert, but this is my understanding based on schedule D instructions.

    -Pam

  19. Hi,
    One other thing for year end that could be deferred till April of the following year is IRA which could save you on deferred tax savings.. Thoughts?
    By the way I have put a link to your website from mine!
    Thanks
    Tapan

  20. I have told the anecdote for years about how I wound up with my birth date. I was a scheduled c-section with a window of 25 December – 8 January. My mom wanted to have me on 1 January, to be a “New Year’s baby”. Dad wanted 31 December to appease my mom but get the tax benefit. The doctor wanted New Year’s Eve off for a change. They all comprimised on December 30th. I’m glad to see my dad isn’t the only one who thinks this way. (I won’t get into the part where they told me I was born November 30th for the first 9 years of my life).

  21. “(I won?t get into the part where they told me I was born November 30th for the first 9 years of my life).”

    LOL, please get into it, that sounds hilarious. :D

  22. Hi Jonathan,

    I have followed your blog everyday for the last year or so. I am very impressed with your focus towards your objectives. Wish you all the best and a very happy 2008! It has been a pleasure to read your blog.

    Sunny

  23. Jon, additional clarification — if you’ve held the stocks with losses for less than a year, you can deduct against income. If you held the stocks for more than a year, then it cancels out capital gains first and then anything left over can deduct income up to 3000 a year.

    So the best strat is to always take losses as soon as possible before the year is up — and sell gains after a year.

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