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By Christine Benz | 11-04-2015 10:00 AM

Year-End Tax-Planning Tips

Investors may be able to trim their tax bills by tax-loss harvesting, taking advantage of Roth-recharacterization rules, or making a qualified charitable distribution, says Baird's Tim Steffen.

Christine Benz: Hi, I'm Christine Benz for The fourth quarter is upon us and, with it, some opportunities to save on your 2015 tax bill. Joining me to share some strategies on this front is Tim Steffen--he is director of financial planning for Robert W. Baird.

Tim, thank you so much for being here.

Tim Steffen: Good to be here again.

Benz: Let's talk about some stage-setting as we look upon 2015. Let's talk about the key tax differences relative to 2014. Are there any big things that investors should have on their radar?

Steffen: It's really been a pretty quiet year, at least from a legislative standpoint. There haven't been any significant new laws enacted. A few expirations, but that's about it. It's things that we've kind of gotten used to over the last several years. Nothing really significant this year. From an investment standpoint, what matters is what's happened with your portfolio this year. It's obviously been a pretty up-and-down market. We had a pretty big dip there for a while; but for those who hung on, we've picked a lot of that back up. For those who bailed at the bottom, they've got some planning opportunities that they should maybe take a look at.

Benz: I want to delve into those. As you said, it's been a little bit of a rollercoaster year for investors. As they are looking upon their portfolios and thinking about what kinds of things they can do to try to minimize their 2015 tax bill, let's talk about some of them. Starting with tax-loss selling, you often hear that you should look through your portfolio to see if there's anything that you can sell and maybe realize a loss.

Steffen: A lot of people like to look at tax-loss selling as a way of zeroing out their income. The first thing I always tell people is this: Before you think about selling for tax purposes, think of it from an investment standpoint. Everything should be driven by the portfolio first; you should have a good, solid investment reason for anything you're doing. Taxes [are a factor you'll want to think about], but it should be an investment decision first.

Now, if you're at this point of the year and you realize you've got a lot of capital gains, one thing that people will do is find some losses in their portfolio that they can then sell to offset those gains. But you've got to be careful of wash-sale rules and some of the other things that will prohibit you from getting back into those positions right away. You could double up on some of those and then sell the original lot so that you're not out of the position if it's something you still like. But yes, tax-loss selling is one way to at least offset the capital gains you've got. You have to be careful about trying to estimate what your gains are; you don't necessarily have full control over all of your gains for the year. Mutual funds tend to surprise people a little bit at the end of the year.

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