RALEIGH, N.C. - Time is running out on year-end tax planning.
Acting now can reduce your tax bill for the year, which will pay dividends when you file taxes in the spring.
Here are some recommendations on where to start.
Harvest your losses. If you're anticipating capital gains on your investments this year, you can offset those gains dollar for dollar by taking a loss on another investment or two before the end of the year.
"If you've been waiting for an investment to hopefully turn around and it hasn't, this is an opportune time" to sell, said Janet Fox, president of ACH Investment Group in Raleigh.
Also, if you're expecting that losing stock market investment to turn around - but not soon - you can repurchase the stock without penalty after waiting 30 days. If you repurchase the stock sooner than that, the loss is disallowed.
Alternatively, if you're not anticipating capital gains from investments, you can offset up to $3,000 in ordinary income with losses.
Add to your retirement account. This is a procrastinator's special - something you can do to reduce your tax bill that doesn't have to be done before New Year's Day rolls around. You can make contributions to your IRA until April 17 (which is when federal and state taxes are due next year, rather than the usual April 15). Such a move simultaneously lowers your 2012 taxes, if you're not eligible to participate in a company retirement plan, and builds up your savings.
The maximum annual contribution to a traditional IRA is $5,000, or $6,000 if you're 50 or older. (Contributions to employee-sponsored retirement accounts, such as a 401(k) or 403(b), must be made by year-end to count for 2011 taxes.)
Be charitable, Part 1. Donations made to charities before Jan. 1 are deductible.
In lieu of cash, consider donating appreciated assets such as shares of stock, said Melissa Labant, technical manager at the American Institute of Certified Public Accountants.
"You can avoid having to pay tax on the appreciation by donating the stock directly to the charity," Labant said. "It's a more tax-efficient gift."
