$ 65,100.00

from www.boston.com


I have a number in mind and it should figure prominently in your tax decisions
My plans for substantial tax savings next year, including tax-free stock dividends and long-term capital gains, revolve around one figure: $65,100.
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While not official yet, $65,100 is projected to be the top of the 15 percent tax bracket for spouses filing jointly in 2008, based on how brackets are adjusted annually for inflation. For single filers, it would be $32,550. For every extra dollar, Uncle Sam would take a progressively bigger cut (first 25 percent, then 28, 33, and 35).
That's reason enough for my wife, Georgina, and me - and all taxpayers - to try to stay within the 15 percent bracket (by contributing to deductible retirement plans, for example, and claiming deductions and adjustments to income).
But there is another incentive: From 2008 through 2010, current tax law calls for a "0 percent" rate - that's right, nada - on qualifying stock dividends and long-term capital gains on the sale of securities for people in the two lowest tax brackets.
"Now, that's a free lunch," said Mike Swenson, certified public accountant with Thomson Tax and Accounting. (Through Dec. 31, the tax rate for qualifying dividends and long-term gains in these two brackets is 5 percent.)
Unless the law is renewed, stock dividends will be taxed as ordinary income in 2011 and the rate on long-term gains will revert to a maximum 20 percent.
The uncertainty about what Congress may do next - including repealing the lower rates before 2011 - is prompting many advisers to suggest investors sitting on gains don't wait too long to sell.
Given the government deficit, "low rates for investors may disappear sooner rather than later," said Grace Allison, vice president and tax strategist for Northern Trust. Investors with large unrealized gains in concentrated portfolios (a lot of money in a few stocks) should consider selling and diversifying now, she said.
Even investors with diversified portfolios can benefit from selling, particularly if they can do it tax-free.
"While the low capital-gains rates appear safe for now, tax laws can be unpredictable," Swenson said. "The rule of thumb is to take advantage of the low rates while you can."
Tax reasons alone normally should not drive sell decisions. But in this case, you can buy the same securities right back - or if you have enough money, sell and buy simultaneously - without adverse tax consequences. (There is no "wash-sale" rule when selling at a gain, only when selling at a loss). Your only concerns may be transaction costs, possible fluctuations in share price from sale to repurchase, and whether your fund imposes a waiting period to buy again after you sell.
To qualify for long-term rates, securities must be held more than a year. Gains and dividends count as taxable income to determine your bracket. Next year, we plan to sell selected no-load fund shares for solid gains but not enough to push us beyond the 15 percent bracket (and nowhere near enough that the alternative minimum tax becomes an issue). We'll buy the same number of shares the same day, keeping our portfolio intact and establishing a new and higher tax basis. We'll also refrain from selling investments at a loss in taxable accounts because losses must first be used to offset gains, and the gains will be tax-free anyway.
Humberto Cruz is a columnist for the South Florida Sun-Sentinel. He can be reached at AskHumberto@aol.com
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