Personal Finance: Year-end portfolio tips to minimize taxes

Christmas is coming, the goose is getting fat, and Uncle Sam is itching to get his hands on your income tax for next year. Not much of a rhyme, but a good reminder to review your portfolio before year-end for ways to minimize the tax bite.

Tax selling. Got any investments in taxable (nonretirement) accounts that are under water? Consider turning them into assets to deploy later. Losses realized on losing positions can usually be used to offset realized gains dollar for dollar. If you own a couple of turkeys that need plucking, dump them before Dec. 31 and use the loss to reduce capital gains taxes on holdings you cashed in at a profit. If losses exceed gains, you may apply up to $3,000 against ordinary income on your tax return. Any additional losses not utilized this tax year can be carried forward indefinitely to offset future gains.

photo Photo — Please put this mug shot of Chris Hopkins of Barnett & Co. in our system to use every other Wednesday when it will run with his column.

If you still like the investment but believe it is temporarily depressed and likely to recover, take the loss now and buy it back after 31 days. Any sooner and the IRS will disallow your write-off.

Retirement plan contributions. Check with your HR department to see if you have made the maximum allowable contribution into your company plan. The maximum deferral for 2015 is $18,000 for 401k, 403b and 457 plans. If you are age 50 or over, an additional "catch-up" contribution of $6,000 is also allowed.

Depending upon your income, you may also be able to deduct contributions to an IRA account. If you are married with a plan at work, IRA contributions are deductible if your household income is $98,000 or less, and partially deductible up to $118,000 in income. If your spouse is covered at work but you are not, your IRA contribution is fully deductible up to $183,000 in household income.

If neither spouse is eligible at work, IRA contributions are fully deductible regardless of income. For 2015, the limit is $5,500 per taxpayer plus a $1,000 catch-up for the over-50 set.

Required minimum distributions. Taxpayers turning age 70 1/2 in 2015 are required to start tapping traditional IRA accounts. (IRS rules allow the first required payment to be deferred to April 1 of the following year, but no more Mister Nice Guy thereafter). If you are new to this required distribution business, pay close attention to the rules as there is a 50 percent penalty for blowing it. If you were required to take a distribution this year, double check that it got done and in the right amount.

In a year like 2015, you may have securities in your IRA with unrealized losses. One option you might consider is to make your required distribution in kind rather than in cash. That is, instruct your broker to transfer depressed stocks from your IRA to your taxable account to satisfy the required distribution. While it's not exactly lemonade, it might mitigate the pain since your losses are nondeductible in the IRA, but any recovery in the stocks after distribution will be taxed as capital gains rather than ordinary income. If you already made your required distribution within the past 60 days, you may be able to undo it by redepositing the distribution as a rollover and taking the in-kind stock payment instead. Careful here, as this in only allowed once per year.

If it's too late for 2015, consider making next year's in-kind distribution in January before the stocks recover.

And of course, consult your tax adviser before executing any of these strategies.

It's never fun forking over taxes, but shaving a bit off of Uncle Sam's take definitely makes for a happy holiday.

Christopher A. Hopkins, CFA, is a vice president and portfolio manager for Barnett & Co. in Chattanooga.

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