Tax Planning

There are many ways that financial planners can help a person efficiently deal with their taxes. A sale in certain types of assets whether it be stocks, bonds, or real estate can save an individual taxes. In fact the sale of any asset should be analyzed with a fine tooth comb to find out about possible tax savings.

Capital Loss harvesting- A capital loss may sound unpleasant but it could actually work in your favor. Choosing the proper time to take a loss can save you hard earned money. Tax payers in the 35% tax bracket reduce taxes by 57% by taking a long term gain rather than short term gain. Here's an example of capitol losses at work:

Mark invested $25,000 in Speedy Scones stock on October 1, 2006. In September 2007, the value of the stock has dropped to $1,000. He thinks the chances of the stock increasing in value are slim so he plans to sell it. Mark is in the 35% tax bracket and during 2007 has already recognized a $15,000 short-term capital gain and a $20,000 long term capital gain. He does not anticipate any other trades for the year.

If Mark sells the stock before October 2, 2007, he will recognize a short term capital loss of $24,000 (assuming no change in value). This loss offset $24,000 of his short-term capital gains for the year to produce $8,400 ($24,000 x 35%) tax savings.

If Mark waits and sells after October 1 but on or before December 31, 2007, he will recognize a $24,000 long term loss (assuming no change in value). This loss will offset $24,000 of his long-term capital gains in the year of the sale and produce a $3,600 ($24,000 x 15%) tax savings.

Retirement Accounts- Some retirement accounts are vehicles that allow for the reduction of self employment income which can defer taxes for individuals. Contributions to these accounts will sometimes drop an individual or family a complete tax bracket. This combination of tax saving and retirement savings is a win win situation for your financial situation.

Standard deduction Leveraging- Using the standard deduction one year and then itemizing the next is a great way to save on taxes. For instance, if you throw a little charitable and property tax in the mix for your itemized deduction, it may in fact lower your taxes.