by Alexander Green, Investment U’s Chief Investment Strategist
Monday, October 25, 2010: Issue #1373
Last week, I met with a tax advisor who said something a bit ominous – but also true, I think:
For the rest of our lifetimes, income and capital gains tax rates will never be lower than they are today.
This is a bit startling when you consider that tax rates aren’t particularly low right now. Income, in particular, is taxed at up to 35%, compared to 28% when Reagan was in office.
When you add in Social Security taxes, unlimited Medicare taxes and an average state income tax of 6%, federal and state governments may take up to half of what you earn.
Of course, the Obama Administration is itching to let the Bush tax cuts expire and allow the top marginal tax rate to rise another 13% (to 39.6%).
Thanks to the fiscal crisis that Congress has created over the past decade, tax rates are likely to keep rising in the months and years ahead.
Clearly, you need to take whatever actions are permissible to keep as much of what you’ve earned as possible. And for investors, that starts with tax-managing your portfolio…
Effective Tax Management in Five Easy Steps
Here are the five basic steps to tax-managing your portfolio properly:
Take these steps and you’ll substantially lessen the government’s tax bite. The few remaining choices are simple ones – for example, owning tax-free rather than taxable bonds, especially if you reside in a high-tax state like New York or California.
An Artful Solution to Cutting Your Taxes
The 1995 Tax Act also allows you to donate – to any IRS-approved charity – works of art at their fair market value, not their cost basis.
Moreover, you can deduct the charitable gift’s fair market value on your tax return without being subject to the dreaded alternative minimum tax.
Pillar One Advisor Mike Kuschmann works closely with published artists and sometimes acquires limited edition prints or serigraphs at a substantial discount to their current market value.
As Kuschmann explains, “Clients of mine purchase them far below published cost – often for just a few thousand dollars – and later donate them to a local hospital or university at fair market value, allowing them to save thousands of dollars in federal taxes.”
For more information, contact Mike Kuschmann, president of Fine Arts Ltd, at: 800-229-4322 or 407-702-6638. He’ll send you a complimentary brochure pack explaining his services and detailing the tax savings available.
Over the next few weeks, I’ll highlight several other year-end tips for reducing your tax liabilities.
Because – remember – it’s not how much you make. It’s how much you keep.