Tax Musing at Christmas Time...

As my wife continues dutifully decorating our home for the Christmas season, I began to reflect on the not-so-pleasant year-end tasks which need attention. Nearly every ornament she places on the tree triggers a specific memory of our lives together, our children and even our childhood. Likewise, as I ponder the financial wish list, I felt the need to pull together my own list of things that my readers might do before year end to truly have a Merry Christmas and a Happy New Year. So, in no particular order, here are a few financial "gift ideas" you may want to consider before the calendar changes to 2009.

Harvesting Investment Losses
No one likes to lose money on investments. However, there is a way to take some of the sting out of the loss. You may want to consider selling some of your under performing investments at a loss and offset them with the sale of other investments which may have a capital gain built up. Capital gains and losses are netted against each other on your tax return to yield the net capital gain or loss for the year. If you do this, you can offset the capital gain tax on the "good" investment with the loss on the "bad" investment. Be careful, this strategy does not work for investments in IRA or 401(k)accounts, as gains and losses in those accounts are all deferred. Lastly, your losses can exceed your gains by up to $3,000 per year and still be completely deductible in the current tax year. Capital losses above $3,000 will be carried forward to future years.

Business Owners
There are a number of things you can do before December 31st to create holiday cheer. If you believe taxes will be higher in 2009 and beyond, do your best to receive income in 2008 and defer expenses in 2009. This may sound counter-intuitive, but, if the 39.6% top tax rate returns for 2009, you may wish you had done it. One deduction that can't wait is what has become known as the "SUV" deduction. In essence, if you buy a vehicle for business use that is over 6,000 pounds, you can deduct up to 80% of the cost of the vehicle in the first year. If business is not so good in 2008 and you aren't in need of additional deductions, don't forget the rules for business losses. Depending on the type of loss, you may be able to carry the loss BACK two years and wipe out taxable income from 2007 and 2006. The Economic Stimulus Act of 2008 also has a couple of goodies you may want to take advantage of. This law contains provisions for bonus depreciation on qualifying property purchased in 2008 only, as well as increased $179 expensing for 2008. Also, don't forget to set up and fund a retirement plan for yourself.

Charitable Giving
I'll quote, from memory, from one of my favorite Christmas movies, the 1972 musical version of Scrooge, "...at this festive season of the year, sir, it is more than usually desirable that we should make some slight provision for the poor and the destitute..." For those of you who are charitably inclined, pull together all those clothes and shoes you no longer wear and donate them to a public charity. This act will save you the hassle of the garage sale, it could get you a tax deduction, and you'll make the community a better place. For those of you looking to wrap charitable giving with estate planning, we at CFS have a number of strategies to employ to receive generous tax deductions today and a lasting legacy for tomorrow.